




. A 




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No. 1907... 

LIBRARY 

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DEPARTMENT OF STATE. 

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No. 

OF THE 

DEPARTMENT OF STATE. 

Alcove, 

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A TREATISE 



\ "•"•• 



POLITICAL ECONOMY. 



A 

TREATISE 

POLITICAL ECONOMY; 

OR THE 

PRODUCTION, DISTRIBUTION AND CONSUMPTION 

OP 

WEALTH. 

By JEAN-BAPTISTE SAY. 



TRANSLATED FROM THE FOURTH EniTIOIJ- OF THF. FREJTCH 

Br C. R. PRINSEP, M. A. 

WITH SOTES BY THE TRANSLATOR. 



CONTAINING 

a tuanslation of the intronuctto^t, ast) ahdtttonal notes, 
By clement C. BIDDLE, 

SIF.MBER OF THE AMERICAN PHILOSOPHICAL SOCIETY, 



PHILADELPHIA: 

JOHN GRIGG, NO. 9, NORTH FOURTH STREET. 

1827. 



"n 




Eastern District of Pennsylvania, to wit: 

Be it remembered, that on the eleventh day of May, A. D. 1827, in the 
fifty -first year of the Independence of the United States of America, John 
Grigg, of the said district, has deposited in this office the title of a Book, 
the right wliereof he claims as proprietor, in the words following, to wit: — 

" A Treatise on Political Economy; or the Production, Distribution and 
Consumption of Wealth. By Jean-Baptiste Say. Translated from the fourth 
edition of the French by C. R. Prinsep, M. A. With notes by the Trans- 
lator. Second American Edition. Containing a Translation of the Introduc- 
tion, and additional Notes, by Clement C. Biddle, member of the American 
Philosophical Society." 

In conformity to the Act of the Congress of the United States, entitled, 
" An act for the encouragement of learning, by securing the copies of maps, 
charts and books, to the authors and proprietors of such copies, during the 
times therein mentioned:" and also to an act entitled, " An act supplement- 
ary to an act, entitled. An act for the encouragement of learning, by securing 
the copies of maps, charts and books, to the authors and proprietors of such 
copies, during the times therein mentioned; and extending the benefits 
thereof to the arts of designing, engraving, and etching historical and other 
prints. 

D. CALDWELL, 
Clerk of the Eastern District of Pennsylvania. 



J. CK1SSY ANll (i. GOODMAN, PEINTEnS. 



CONTENTS. 



BOOK I. 

OF THE PRODUCTION OF WEALTH. 

PAGE 

Advertisement by the American Editor - - - ix 
IntroduGtion -- xxiii 

CHAP. 

I. Of what is meant by the term production - - 1 

II. Of the different kinds of industry, and the mode in 

which they concur in production - - - 3 

III. Of the nature of productive capital, and the mode 

in which it concurs in the business of production 1 1 

IV. Of the natural agents, that assist in the production 

of wealth; and specially of land - - - 14 

V. Of the mode, in which industry, capital, and natural 

agents unite for the purpose of production - 17 

VI. Of the operations common to all branches of indus- 

try alike - - -,- - - - -20 

VII. Of the labour of mankind, of nature, and of ma- 

chinery respectively 26 

VIII. Of the advantages and disadvantages, resultingfrom 

the division of labour; and of the extent to which 

it may be carried 32 

IX. Of the different methods of employing commercial 

industry; and the mode in which they concur in 
production 41 

X. Of the transformations undergone by capital, in the 

progress of production 47 

XI. Of the formation and multiplication of capital - 51 

XII. Of unproductive capital - - - - - 61 

XIII. Of immaterial products, or values consumed at the 

moment of production ----- 63 

XIV. Of the right of property 71 

XV. Of the vent or demand for products - - - 75 

XVI. Of the benefits, resulting from the brisk circulation 

of money or commodities - - - - 84 

XVII. Of the effect of government-regulations, intended 

to influence production ----- 87 



VI CONTENTS. 



PAGE 



Sect. 1. Effect of regulations prescribing the na- 
ture of the products - - - - 88 
Digression — Upon what is called the ba- 
lance of trade 93 

2. Of the effect of regulations, fixing the 

manner of production _ . . 120 

3. Of privileged trading companies - 129 

4. Of regulations affecting the corn trade - 134 

XVIII. Of the effect upon national wealth, resulting from 

the productive efforts of public authority - 144 

XIX. Of colonies and their products - - - 148 

XX. Of temporary and permanent emigration, consi- 

dered in reference to national wealth - - 160 

XXI. Of the nature and uses of m.oney 

Sect. 1. General remarks - - - - - 164 

2. Of the material of money > - - 168 

3. Of the accession of value, a commodity 

receives, by being vested with the cha- 
racter of money - - - - 170 

4. Of the utility of coinage; and of the charge 

of its execution - - - - 175 

5. Of alterations of the standard of money 181 

6. Of the reason why money is neither a sign 

nor a measure - - - - - 188 

7. Of a particularity, that should be attend- 

ed to, in estimating the sums mention- 
ed in history - - - - - 196 

8. Of the absence of any fixed ratio of value, 

between one metal and another - - 201 

9. Of money as it ought to be - - - 203 

10. Of copper and brass metal coinage - 209 

1 1. Of the preferable form of coined money 21 1 

12. Of the party, on whom the loss of coin 

by wear should properly fall - - 212 

XXII. Of signs or representatives of money 

Sect. 1. Of bills of exchange and letters of credit 214 

2. Of banks of deposite - - - - 217 

3. Of banks of circulation or discount; and 

ofbank notes, or convertible paper - 219 

4. Of paper money ----- 230 



BOOK II. 

OP THE DISTRIBUTION OE WEALTH. 

I. Of the basis of value, and of supply and demand 235 

II. Of the sources of revenue , - - - 244 

III. Of real and relative variation of price - - 250 



CONTENTS. 



Vll 



IV. Of nominal variation of price, and of the peculiar 

value of bullion and of coin - - - - 

V. Of the manner, in vi^hich revenue is distributed 

amongst society _-_--- 

VI. Of what branches of production yield the most libe- 

ral recompense to production agency 

VII. Of the revenue of industry: 

Sect. 1. Of the profits of industry in general 

2. Of the profits of the man of science 

3. Of the profits of the master-agent or ad- 
venturer in industry . - - - 

4. Of the profits of the operative labourer - 

5. Of the independence accruing to the mo- 
derns from the advancement of industry - 

VIII. Of the revenue of capital _ > - . . 
Sect. 1. Of loan at interest - - - - - 

2. Of the profit of capital - - - - 

3. Of the employments of capital most bene- 
ficial to society - - . . - 

IX. Of the revenue of land: 

Sect. 1. Of the profit of landed property 

2. Of rent ------- 

X. Of the effect of revenue derived by one nation from 

another _-- 

XI. Of the mode, in which the quantity of the product 

affects population: 
Sect. 1. Of population, as connected with political 

economy 

2. Of the influence of the quality of a nation- 
al product upon the local distribution of the 
population - - - - - 



PAGE 

259 

267 

275 

278 
283 

284 
287 

296 
298 
299 
311 

313 

316 

322 

325 



329 



340 



BOOK in. 



OF THE CONSUMPTION OF W^EALTH. 

I. Of the different kinds of consumption - - - 347 

II. Of the effect of consumption in general - - 35 1 

III. Of the effect of productive consumption - - 354 

IV. Of the effect of unproductive consumption in gen- 

eral 357 

V. Of individual consumption, its motives and its ef- 

fects ---._--_ 362 

VI. Of public consumption: 

Sect. 1. Of the nature and general effect of public 

consumption - - - - - 373 
2. Of the principal objects of national expen- 
diture ...=-- 382 



Vm CONTENTS- 



PAGE 



Of the charge of civil and judicial admin- 
istration ------ 384 

Of charges, military and naval - - 389 

Of the charges of public instruction - 393 

Of the charges of public benevolent insti- 
tutions ------ 400 

Of the charges of public edifices and v^^orks 403 

VII. Of the actual contributors to public consumption - 405 

VIII. Of taxation: 

Sect. 1 . Of the effect of all kinds of taxation in ge- 
neral 408 

2. Of the different modes of assessment, and 

the classes they press upon respectively - 423 

3. Of taxation in kind 438 

4. Of the territorial or land-tax of England - 440 

IX. Of national debt: 

Sect, 1. Of the contracting of debt by national au- 
thority, and of its general effect - - 442 
2. Of public credit, its basis, and the circum- 
stances that endanger its solidity - - 447 



ADVERTISEMENT 

3$a the ^mrvCcan EtrCtpr. 



No work upon Political Economy has appeared in Europe, 
since the publication of Dr. Adam Smith's profound and ori- 
ginal Inquiry into the nature and causes of the Wealth of Na- 
tions, that has attracted more general attention, and received 
more distinguished marks of approbation from competent 
judges, than the " Traite D'Economie Politique" of M. Say. 
The first edition of this treatise was printed in Paris in the year 
1803; and, subsequently, it has passed through four large edi- 
tions, that have received various corrections and improvements 
from the author. Translations of it have, also, been made into 
the German, Spanish, Italian, and other languages; and it has 
been adopted as a text-book in all the universities of the con- 
tinent of Europe in which this new but essential branch of 
liberal education is now taught. The two former American 
editions of the following translation have also been introduced 
into several of the most respectable of our own seminaries of 
learning. 

It is unquestionably the most methodical, comprehensive, 
and best digested treatise on the elements of Political Econo- 
my, that has yet been presented to the world. It contains a 
clear and systematical view of all the solid and important doc- 
trines of this very extensive and difficult science, unfolded in 
their proper order and connexion. The reasonings employed 
by the author in defence of his principles are, with but a few 
exceptions, logical and accurate, delivered with distinctness 
and perspicuity, and supported by the fullest and most satis- 
factory illustrations. By a rigid adherence to the inductive 
method of investigation, in the prosecution of almost every 
part of his inquiry, M. Say has effected a nearly complete ana- 
lysis of the numerous and complicated phenomena of Wealth, 



X ADVERTISEMENT. 

and has thus been enabled to lay down and establish, with all 
the evidence of demonstration, the simple and general laws on 
which its production, distribution, and consumption depend. 
The few slight and inconsiderable errors into which the author 
has fallen in the course of his investigation do not, in the 
opinion of the editor, impair the general soundness and con- 
sistency of his text, although, it is true, they are blemishes that 
disfigure it. But these are of rare occurrence, and the false 
conclusions involved in them may be easily detected and re- 
futed, by recurrence to the leading fundamental principles of 
the work, with which they are manifestly at variance and 
contradict. 

The foundation of the science of Political Economy had 
been laid, and the only successful method of prosecuting our 
researches in it, pointed out and exemplified, by the illustrious 
author of the Wealth of Nations; and many of its theoretical 
doctrines had been developed and explained by various other 
eminent writers on the same subject, who both preceded and 
followed him. But, neither the scientific genius and pene- 
trating sagacity of the former, nor the brilliant talents and per- 
severing industry of many of the latter, were sufficient to ef- 
fect an entire and perfect solution of the most difficult and ab- 
struse problems which form the basis of this important study. 
Aided, however, by their valuable labours, and the materials 
they had collected and arranged, and proceeding in the same 
path, M. Say, with a closeness and minuteness of attention due 
to its importance, has succeeded in examining, under all their 
aspects, the particular phenomena which the ground-work of 
this science presents, and by rejecting and excluding all acci- 
dental circumstances has traced up their ultimate laws or prin- 
ciples. 

Accordingly, the author of this treatise, by pursuing the in- 
ductive method of investigation has, in the most strict and philo- 
sophical manner, demonstrated the true nature of Value, ded uced 
its origin, and presented a clear and accurate explanation of its 
theory. His definition of Wealth is, therefore, more precise 
and correct than that of any of his predecessors in this inquiry. 
The operation of hum.an industry, which Dr. Adam Smith, 
not with the strictest propriety, denominates labour, the im- 
portant agency of natural powers, the functions of capital, and 
the relative services of these three instruments, as well as the 



ADVERTISEMENT. XI 

modes in which they all concur in the business of production, 
were first distinctly and fully pointed out and illustrated by 
our author. In this way he successfully unfolded the manner 
in which production takes place, and imparts value to products, 
in Agriculture, Manufactures and Commerce. In distinguish- 
ing re-productive from un-productive consumption, M. Say 
has exhibited the exact nature of capital and its agency in pro- 
duction, and thence has shown why economy is a source of na- 
tional wealth. Such are this author's peculiar and original 
speculations, the fruits of deep and patient meditation on the 
phenomena observed. The elementary principles derived 
from them, with others previously ascertained, he has com- 
bined into one harmonious, consistent, and beautiful system. 

But some of these solid and well established positions have 
been criticised and objected to, as inconclusive and inadmissi- 
ble, by Mr. Ricardo and by Mr. Malthus, two of the ablest 
and most celebrated political economists among our author's 
contemporaries. Other doctrines in relation to the nature and 
origin of Value have been advanced by them, and with so 
much plausibility too, that some of the most acute reasoners 
of the present day have not been sufficiently on their guard 
against them. The mathematical cast given to their reason- 
ings by these writers, has captivated and led astray the un- 
derstandings of their most intelligent and sagacious readers, 
and induced them to adopt as scientific truths, what, when 
properly investigated and analysed, are found to be merely 
specious hypotheses. Hence it is, that a theory of Value, 
purely gratuitous, has been extolled in one of the principal 
literary journals of Great Britain as being " no less logical and 
conclusive than it was profound and important. " Our author, 
therefore, deemed it necessary to examine the arguments 
brought forward in support of these views of his opponents, in 
order to test their soundness and accuracy, and to submit his 
own principles to a further review, that he might become sa- 
tisfied, that the conclusions he had deduced from them had not 
been in any manner invalidated. 

In the notes appended by M. Say to the French translation 
of Mr. Ricardo's Principles of Political Economy and Taxa- 
tion, the reader will find what the editor deems a masterly and 
conclusive refutation of the theoretical errors of this author. 
M. Say's strictures upon the twentieth chapter of the work. 



Xll ADVEKTISEMENT. 

entitled, "Value and Riches, their Distinctive Properties,'' 
are in his opinion decisive and unanswerable. The fallacies 
contained in Mr. Ricardo's theory of Value, which, the editor 
thinks, may be traced to an anxiety to give consistency to the 
loose and inaccurate assertion of Dr. Adam Smith, that ex- 
changeable value is entirely derived from human labour, are 
there fully exposed, and his whole train of reasoning shown 
to rest upon an unwarrantable assumption. It must however 
be conceded that Mr. Ricardo was an intrepid and uncompro- 
mising reasoner, who always proceeded in the most direct and 
fearless manner from his premises to the conclusion. But not 
uniting, with the strongest powers of reasoning, a capacity for 
analytical subtilty, he sometimes did not perceive verbal am- 
biguities in the formation of his premises, and transitions in 
the signification of his terms in the conduct of his argument, 
which, in these instances, vitiated his conclusions. The fun- 
damental errors into which he has fallen, accordingly, do not 
arise from any want of strictness in his deductions, but from 
undue generalizations and perversions of language. In M. 
Say's Letters to Mr. Malthus, which have been translated 
into English by Mr. Richter, the points at issue between 
these two eminent political economists are discussed in the 
most luminous, impartial and satisfactory manner; and by all 
candid and unprejudiced critics must be considered as bring- 
ing the controversy to a close. 

It is not his intention, nor would it be proper on this occa- 
sion, for the editor further to enter into the merits of the con- 
troversial writings of our author. Any dispassionate inquirer, 
who will take the pains carefully to review the whole ground 
in dispute, will, he thinks, find, that these writings contain a 
triumphant vindication of such of the author's general princi- 
ples as had been assailed by his ingenious opponents. When- 
ever the study of the science of Political Economy shall be 
more generally cultivated as an essential branch of early edu- 
cation, most of the abstruse questions involved in the contro- 
versies which now divide the writers on this subject will be 
brought to a conclusion; the accession of useful knowledge it 
will occasion will more effectually eradicate the prejudices 
which have given birth to these disputes and misconceptions, 
than any direct argumentative refutation. 



ADVERTISEMENT. Xlll, 

The great merits of M. Say's treatise on Political Economy* 
are now well known and highly estimated in Great Britain, 
by that class of speculative readers who take a deep interest in 
the progress of a science, which " aims at the improvement of 
society," as Dugald Stewart so truly remarks, " not by de- 
lineating plans of new constftutions, but by enlightening the 
policy of actual legislators;" a science, therefore, with the 
right understanding of whose principles the welfare and hap- 
piness ofjmnkind are intimately connected. 

In al^^^g to this excellent work of M. Say, Mr. Ricardo 
remarljllPTOiat its author not only was the first, or among the 
first, of continental writers, who justly appreciated and applied 
the principles of Smith, and who has done more than all other 
continental writers taken together, to recommend the princi- 
ples of that enlightened and beneficial system to the nations of 
Europe; but who has succeeded in placing the science in a 
more logical, and more instructive order; and has enriched it 
by several discussions, original, accurate, and profound." 

The English public has for some time been in possession of 
the present excellent translation of this treatise by Mr. Prinsep; 
the first edition of which was published in London in the 
spring of 1821. It is executed with spirit, elegance and ge- 
neral fidelity, and is a performance, in every respect, worthy 
of the original. It is here given to the American reader with- 
out any alteration. 

The translator wasted much ingenuity, in various notes 
which he thought proper to subjoin to the text, by endea- 
vouring to overthrow some of the author's elementary princi- 
ples, which, notwithstanding, are as fixed and immutable as 
the facts which constitute their basis. Had Mr. Prinsep more 
thoroughly studied M. Say's profound theoretical views on the 
subject of Value, and had he, also, made himself acquainted, 
which it no where appears that he has done, with the power- 
ful and successful defence of these doctrines, contained in the 
notes on Mr. Ricardo's work, and in the letters to Mr. Mal- 
thus, already referred to, he perhaps might have discovered, 
that they are the ultimate generalizations of facts, which, 
agreeably to the most ligitimate rules of philosophising, the 
author was entitled to lay down as general laws or principles. 
At all events, Mr. Prinsep should not have ventured upon an 



XIV ADVERTISEMENT. 

attack on these first principles of the science of Political Eco- 
nomy, without this previous examination. 

Such, therefore, of these notes of the English translator as 
are in opposition to the well established elements of the science, 
and have no other support than the hypothesis of Mr. Ricardo 
and Mr. Malthus, have been eiptirely omitted; the editor not 
deeming himself under any obligation to give currency to er- 
rors, which would perpetually interrupt and distract the at- 
tention of the reader in a most abstruse and difficult inquiry. 
Other notes of the translator, which contain in^^^^ng and 
valuable illustrations of other general principles^i^^ work, 
drawn from the actual state of Great Britain and her colonies, 
have been retained in this edition, as appropriate and useful. 
The translator's remarks on the pernicious character and 
tendency of the restrictive and prohibitive policy, are particu- 
larly worthy of regard, confirming as they most fully do, on 
this subject, all the important conclusions of the author. The 
folly of attempting, either by extraordinary encouragements, 
to attract towards some branches of production a larger share 
of capital and industry than would naturally be employed in 
them, or by uncommon restraints forcibly to withdraw from 
others a portion of the capital and industry that would other- 
wise be invested in them, is beginning to be better understood. 

The restrictive system, or that which by means of legislative 
enactments endeavours to give a particular direction to nation- 
al capital and industry, derived its whole support from the as- 
sumption of positions now generally admitted to be gratuitous 
and unfounded, namely, that in trade whatever is gained by 
one nation must necessarily be lost by another, that wealth 
consists exclusively of the precious metals, and consequently 
that in all sales of commodities the great object should be to 
obtain returns in gold and silver. In Europe these erroneous 
opinions have now, for some time, been relinquished by politi- 
cal economists of all the various schools, some of whom yet 
differ and dispute respecting a few of the more recondite and 
ultimate elements of the science. In the whole range of in- 
quiry in Political Economy, perhaps there is not a single pro- 
position better established, or one that has obtained a more 
universal sanction from its enlightened cultivators in every 
country, than the liberal doctrine, that the most active, gene- 
ral and profitable employments are given to the industry and 



ADVERTISEMENT. XV 

capital of every people, by allowing to their direction and ap- 
plication the most perfect freedom, compatible with the secu- 
rity of property. This fundamental position of Political Econ- 
omy, and the various principles that flow from it as corollaries, 
were first systematically developed, explained and taught by 
the great father of the science. Dr. Adam Smith; although 
glimpses of some of these important truths had previously, and 
about the same time, reached the minds of a few eminent indivi- 
duals in other parts of the world. " The most effectual plan for 
advanciug^-people to greatness," says Dr. Smith, " is to main- 
tain that orderof things which nature pointed out; by allowing 
every man as long as he observes the rules of justice, to pursue 
his own interest in his own way, and to bring both his indus- 
try and his capital into the freest competition with those of his 
fellow citizens." Animated by the same desire to promote 
the improvement and happiness of mankind that actuated Dr. 
Smith, the most profound inquirers among his successors em- 
braced his enlarged and benevolent views, as the only certain 
means of augmenting national wealth, and eloquently vindi- 
cated and enforced them. The doctrine of the freedom of 
trade and industry was adopted and taught by Stewart, Ricardo, 
Malthus, Torrens, Horner, Huskisson, Lauderdale, Bentham, 
Mills, Craig, Lowe, Tooke, and M'Culloch, the most distin- 
guished British political economists, and on the continent of 
Europe, by authors as celebrated, namel}^. Say, Sismondi, 
Storch, G^arnier, Destutt-Tracy, Ganilh, Jovellanos, Sartorius, 
Queypo, Leider, Von Schlozer, Kraus, Weber, and Muller. 

"Under a system of perfectly free commerce," says Mr. 
Ricardo, " each country naturally devotes its capital and la- 
bour to such employments as are most beneficial to each. This 
pursuit of individual advantage is admirably connected with 
the universal good of the whole. By stimulating industry, 
by rewarding ingenuity, and by using most efiicaciously the 
powers bestowed by nature, it distributes labour most efiec- 
tively and most economically: while by increasing the general 
mass of productions, it diffuses general benefit, and binds to- 
gether by one common tie of interest and intercourse, the 
universal society of nations throughout the civilized world. 
It is this principle which determines that wine shall be made 
in France and Portugal, that corn shall be grown in America 



XVI ADVERTISEMENT. 

and Poland, and that hard-ware and other goods shall be manu- 
factured in England." 

Our own illustrious countryman Franklin too, with a sagacity 
and force which always characterized his intellect, maintained 
and exemplified in his "Essay on the Principles of Trade," 
what he therein repeatedly called "the great principle of free- 
dom in trade." Even before the appearance of the Wealth of 
Nations, he had with almost intuition anticipated some of the 
most profound conclusions of the science of Political Economy, 
which other inquirers had arrived at only after a patient and 
laborious analysis of its phenomena. The new and'generous 
commercial policy is not more beholden for support and cur- 
rency to the arguments and illustrations of any one of its early 
expositors, than to the clear and vigorous pen of the highly 
gifted American philosopher. " The expressions, Laissez 
nous /aire, and pas irop gouverner" says that highly ac- 
complished and able critic, Dugald Stewart, *' which 
comprise in a few words two of the most important lessons of 
political wisdom, are indebted chiefly for their extensive cir- 
culation, to the short and luminous comments of Franklin, 
which had so extraordinary an influence on public opinion, 
both in the Old and New World." Nevertheless, strange as 
it may seem, by a perversion or misconception of a few of his 
incidental opinions, the name of the first of practical statesmen 
has been invoked, and its authority employed among us, in aid 
of a system of restraints and prohibitions on commerce, which 
it was the chief aim of his politico-economical writings to refute 
and condemn as alike repugnant to sound theory and destruc- 
tive to national prosperity. Whenever American statesmen 
and legislators shall have as clear and steady perceptions as 
Franklin, of the truth and wisdom of the doctrine of commer- 
cial freedom, we may expect that our national and state codes 
will no longer exhibit so many traces of that empirical spirit 
of tampering regulation, which, instead of invigorating and 
quickening the development of national wealth, only cramps 
and retards its natural growth. "Where should we expect," 
says M. Say, in a letter to the editor, " sound doctrine to be 
better received than amongst a nation that supports and illus- 
trates the value of free principles, by the most striking exam- 
ples. The old states of Europe are cankered with prejudices 
and bad habits; it is America who will teach them the height 



ADVERTISEMENT. Xvii 

of prosperity which may be reached when governments follow 
the counsels of reason and do not cost too much." 

The preliminary discourse by the author has been translated 
by the American editor, and in this edition of the work is re- 
stored to its place. The editor must confess, that he is at a 
loss to account for the omission by the English translator of so 
material a part of the author's treatise, as the introduction to 
his whole inquiry. In itself, it is a performance of uncommon 
merit, has immediate reference to, and sheds much light over, 
the general views unfolded in the body of the work. The na- 
ture and object of the science of Political Economy, the only 
certain method of conducting any of our inquiries in it with 
success, and the causes which have hitherto so much retarded 
its advancement, are all considered and pointed out with great 
clearness and ability. The author has also connected with it 
a highly interesting and instructive historical sketch of the 
progress of this science, during the last and present century, 
interspersed with numerous judicious and acute criticisms upon 
the writings and opinions of his predecessors. Moreover, this 
discourse, throughout every part, is deeply philosophical, and 
well calculated to prepare the reader for the study on which 
he is about to enter. The editor has, therefore, he trusts, per- 
formed an acceptable service, in putting the American student 
in possession of so important a part of the original work. * 

Notes have, also, been subjoined by the American editor, 
for the purpose of marking a few inconsiderable errors and in- 
consistencies into which the author has inadvertently fallen, 
together with an occasional supplementary observation, drawn 
from other authors, to such passages of the text as seemed to 

require further elucidation or correction. 

C. C. B. 

Philadelphia, lOtli April, 1827. 

* The following extract of a letter from M. Say, to the American editor, 
it may not be improper to subjoin; as it contains the author's opinion of tiie 
value he attaches to the preliminary discourse. 

" Your translation and restoration of the preliminary discourse adds, in 
my eyes, a new value to your edition. It could only have been from a nar- 
row calculation of the English pubHsher, that it was omitted in Mr. Prinsep's 
translation. Ought that portion of the work to be deemed unuseful, 
whose aim is to unfold the real object of the science, to present a rapid 
sketch of its history, and to point out the only true method of investigating 
it with success' Mr. George Pryme, professor of Political Economy in the 
university of Cambridge, in England, makes this very discourse the principal 
topic of several of his first lectures. 
3 



INTRODUCTION. 



A SCIENCE advances with certainty, only when the plan of in- 
quiry, and the objects of our researches, have been clearly de- 
fined; otherwise, a small number of truths are loosely laid hold 
of, without their connexion being perceived, and numerous er- 
rors, without being enabled to detect their fallacy. 

For a long time the science of Politics, confined, in strict- 
ness, to the investigation of the principles which lay the foun- 
dation of the social order, was confounded with Polif/ical Eco- 
nomy, which unfolds the manner in which wealth is produced, 
distributed and consumed. Wealth, nevertheless, is essential- 
ly independent of political organization. Under every form 
of government, a state, whose affairs are well administered, may 
prosper. Nations have risen to opulence under absolute mon- 
archs, and have been ruined by popular councils. If political 
liberty be more favourable to the development of wealth, it 
is indirectly; in the same manner that it is more favourable 
to general education. 

In confounding in the same researches the essential princi- 
ples of good government with those on which the growth of 
wealth, either public or private, depends, it is by no means 
surprising that authors should have involved these subjects in 
obscurity, instead of elucidating them. Steuart, who has en- 
titled his first chapter "Of the Government of Mankind," is 
liable to this reproach. The sect of " Economists" of the last 
century, throughout all their writings, and J. J. Rousseau in 
the article " Political Economy" in the Encyclopedic, lie un- 
der the same imputation. 

Since the time of Adam Smith it appears to me that these 
two very distinct inquiries have been uniformly separated; the 
term Political Economy* being now confined to the science 



* From 0«(/c, a house, and vofA.oi, a law; Economy, the law which reg'ulates 
the household. Household, according to the Greeks, comprehending- ;ill the 
goods in possession of the family? and political extending- its application to 
society or the nation at large. 

Political Economy is the best expression that can be used to designate 
the science discussed in the following treatise; which is not the investigation 
oi natural wealth, or that which nature supplies us with gratuitously and 
without limitation; but oi social wealth exclusively, which is founded on ex- 
change andtlie recognition of the right of property; both social regulations. 



XX INTRODUCTION. 

which treats of wealth, and that of Politics, to designate the 
relations existing between a government and its people, and the 
relations of different states to each other. 

The wide range taken into the field of pure Politics, whilst 
investigating the subject of Political Economy, was supposed 
to furnish a much stronger reason for including in the same in- 
quiry agriculture, commerce and the arts, the true sources of 
wealth, and upon which laws have but an accidental and in- 
direct influence. Thence how many interminable digressions! 
If commerce, for example, constitutes a branch of Political Eco- 
nomy, all the various kinds of commerce form a part; and as a 
consequence, maritime commerce, navigation, geography — 
where are we to stop? Every department of human know- 
ledge is connected. It is, therefore, necessary to ascertain 
their points of contact, or the articulations by which they are 
imited; by this means, a more exact knowledge will be obtain- 
ed of whatcA^er is peculiar to each, and where they run into one 
another. 

In Political Economy, agriculture, commerce and manufac- 
tures are considered only in reference to the increase or dimi- 
nution of wealth; and not the processes employed in these opera- 
tions. This science indicates the cases in which commerce is 
truly productive, where whatever is gained by one is lost by 
another, and where it is profitable to all; it also teaches us to 
appreciate its several processes, but simply in their results, at 
which it stops. Besides this knowledge, the merchant must 
also understand the processes of his art. He must be acquaint- 
ed with the commodities in which he deals, their qualities and 
defects, the countries from which they are derived, their mode 
of transportation, the values to be given for them in exchange, 
and the method of keeping accounts. 

The same remark is applicable to the agriculturist, to the 
manufacturer, and to the practical man of business; for to ac- 
quire a thorough knowledge of the causes and consequences of 
each phenomenon, the study of Political Economy is essential- 
ly necessaiy to them all; and to become expert in his particu- 
larpursuit, each one must add thereto a knowledge of its pro- 
cesses. These different subjects of investigation were not, 
however, confounded by Dr. Smith; but neither he, nor the 
writers who succeeded him, have guarded themselves against 
another source of confusion, here important to be noticed, in- 
asmuch as the developments resulting from it, may not be al- 
together unuseful in the progress of general knowledge, or in 
the prosecution of our particular inquiry. 

In Political Economy, as in natural philosophy, and in every 
other study, systems have been formed before facts have been 
established; the place of the latter being supplied by bold as- 
sertions. More recently, the excellent method of philosophiz- 
ing, which, during the last half century, has so much contri- 
buted to the advancement of every other science, has been 
applied to the conduct of our researches in this. Has not this 



INTRODUCTION. XX! 

method itself, however, been employed, before really know- 
ing in what its excellence consists, and, consequently, before 
bemg acquainted with all the advantages to be derived from it? 
It is, in general, correctly enough said, that it consists in ad- 
mitting only facts carefully observed, and the consequences 
rigorously deduced from them; thereby effectually excluding 
those prejudices and authorities which, in every department 
of literature and science, have so often been interposed between 
man and truth. But, is the whole extent of the meaning of 
the term/ac/.S', so often made use of, understood? 

It appears to me, that by this word must be understood, not 
only objects that exist, but events that take place; at once 
presenting two classes of facts: it is, for example, one fact, 
that such an object exists; another fact, that such an event takes 
place in such a manner. Objects that exist, in order to serve 
as the basis of certain reasoning, must be seen exactly as they 
are, under every point of view, with all their qualities. Other- 
wise, whilst supposing ourselves to be reasoning respecting the 
same thing, we may, under the same name, be treating of two 
different things. 

The second class oi facts, namely, events that take place, 
consists of the phenomena exhibited, when we observe the 
manner in which things take place. It is, for instance, a fact, 
that metals, when exposed to a certain degree of heat, become 
fluid. 

The manner in which things exist and take place, constitutes 
what is called the nature of thinj^s; and a careful observation 
of the nature of things is the sole wundation of all truth. 

Hence, a twofold classification of sciences, namely, into 
those which maybe styled descriptive, and impart an accurate 
knowledge of certain objects and their properties, as in bota- 
ny and natural history; and into those which may be styled ex- 
perimental, and unfold the manner in which events take place, 
as in chemistry, natural philosophy and astronomy. Both 
departments are founded on facts, and constitute an equally 
solid and useful portion of knowledge. Political Economy be- 
longs to the latter ; in showing the manner in which events take 
place in relation to wealth, it forms a part of experimental 
science.* 

^nt facts that take place nxd^y be considered in two points 
of view; either dsgeneral or constant, or 'ds particular or va- 
riable. General facts are the results of the nature of things in 
all analogous cs.sfis; particular facts as truly result from the 
nature of things, but they are the result of several operations 

* Experimental science, in order to establish why events take place in a 
certain manner, or to be able to assign a particular cause for a particular ef- 
fect, to a certain extent must be descriptive. Astronomy, in order to ex- 
plain the eclipses of the sun, must demonstrate the opacity of the moon. 
Political Economy, in like manner, in order to show that money is a means^ 
of the production of wealth, but not the end, must extiibit its tnie nature. 



XXll INTRODUCTION. 

modified by each other in a particular case. The former are 
not less incontrovertible than the latter, even when apparently 
they contradict each other. In natural philosophy it is a ge- 
neral fact, that heavy bodies fall to the earth; the water in a foun- 
tain, nevertheless, rises above it. The particular fact of the 
fountain is a result wherein the laws of equilibrium are com- 
bined with those of gravity, but without destroying them. 

In our present inquiry, the knowledge of these two classes 
of facts, to wit, of objects that exist, and of events that take 
jjlace, embraces two distinct sciences, Political Economy and 
Statistics. 

Political Economy, from facts always carefully observed, 
makes known to us the nature of wealth; from the knowledge 
of its nature deduces the means of its creation, unfolds the or- 
der of its distribution and the phenomena attending its destruc- 
tion. It is, in other words, an exposition of the general facts 
observed in relation to this subject. With respect to wealth, 
it is a knowledge of effects and of their causes. It shows what 
facts are constantly conjoined; so that one is always the se- 
quence of the other, and why it is so. But it does not resort 
for any further explanations to hypothesis: from the nature of 
particular events their concatenations must be distinctly per- 
ceived; the science must conduct us from one link to another, 
so thateveryintelligentunderstandingmay clearly comprehend 
in what manner the chain is united. It is this which consti- 
tutes the excellence of the modern method of philosophizing. 

Statistics exhibits the production and consumption of a par- 
ticular country, at a designated period; its population, military 
force, wealth, and whatever else is susceptible of valuation. 
It is a description in detail. 

Between Political Economy and Statistics there is the same 
difference as between Politics and History. 

The study of Statistics may gratify curiosity, but it can 
never be productive of advantage when it does not indicate 
the origin and consequences of the facts it has collected; and 
by indicating their origin and consequences, it becomes at once 
Political Economy. This doubtless is the reason why these 
two distinct sciences have hitherto been confounded. The 
work of Dr. Adam Smith is but an immethodical assemblage 
of the soundest principles of Political Economy, supported by 
luminous illustrations, and of the most ingenious researches in 
Statistics, blended with instructive reflections; but it is not a 
complete treatise of either science, but an irregular mass of 
cui'ious and original speculations and of known and demon- 
strated truths. 

A perfect knowledge of Political Economy may be obtain- 
ed, inasmuch as all the general facts which compose this sci- 
ence may be discovered. In Statistics this never can be the 
case; this latter science, like history, being a recital of facts, 
more or less uncertain, and necessarily incomplete. Of the 
statistics of former periods and distant countries, only detached 



INTRODUCTION. XXIU 

and very imperfect accounts can be furnished. With respect to 
the present time, there are few persons who unite the qualifica- 
tions of good observers, with a situation favourable for accurate 
observation. The inaccuracy of the statements inquirers are 
compelled to have recourse to, the restless suspicions of par 
ticular governments and even individuals, their ill-will, and 
their indifference, present obstacles often insurmountable, 
even by the toil and care taken by them in order to collect 
minute details with exactness; and which, after all, when in 
their possession, are only true for an instant. Dr. Smith ac- 
cordingly avows that he puts no great faith in political arith- 
metic; which is nothing more than the arrangement of numerous 
statistical data. 

Political Economy, on the other hand, whenever the prin- 
ciples which constitute its basis are the rigorous deductions of 
undeniable general facts, rests upon an immoveable foundation. 
Generalfacts are undoubtedlj' founded upon the observation of 

f)articular facts; but upon such particular facts as have been se- 
ected from those most carefully observed, best established, and 
witnessed by ourselves. When the results of these facts have 
uniformly been the same, the cause of their having been so sat- 
isfactorily demonstrated, and the exceptions to them even con- 
firming other principles, equally well established, we are au- 
thorized to give them as ultimate general facts, and to submit 
them with confidence to the examination of all competent inqui- 
rers, who may be again desirous of subjecting them to experi- 
ment. A new particular fact, if insulated, and the connexion 
between its antecedents and consequents not established by rea- 
soning, is not sufficient to shake our confidence in a general fact, 
for who can say that some unknown circumstance has not pro- 
duced the difference noticed in their several results? A light fea- 
ther is seen to mount in the air, and sometimes remain there for 
a long time before it falls back to the ground. Would it not, 
nevertheless, be erroneous to conclude that this feather is not 
affected by the universal law of gravitation? In Political Econo- 
my it is a general fact, that the interest of money rises in pro- 
portion to the riskrun by the lender of not being repaid. Shall 
it be inferred that this principle is false, from having seen mo- 
ney lent at a low rate of interest upon hazardous occasions? The 
lender may have been ignorant of the risk, gratitude or fear may 
have induced sacrifices, and the general law, disturbed in this 
particular case, will resume its entire force the moment the 
causes of its interruption have ceased to operate. Finally, how 
small a number of particular facts are completely established, 
and how few among them are observed under all their aspects! 
And in supposing them well established, well observed, and 
well described, how many of them prove nothing, or directly 
the reverse of what is intended to be maintained by them! 

Hence, there is not an absurd theory or extravagant opin- 
ion that has not been supported by an appeal to facts;* and it 

* In France, tlie minister of the Interior in his expose of 1813, a most dis- 



XXIV INTRODUCTION. 

is by facts also that public authorities have been so often mis- 
led. But a knowledge of facts, v^ithout a know^ledge of their 
mutual relation — without being able to show why the one is 
a cause and the other an effect, is really no better than the crude 
information of a public clerk, of whom the most intelligent 
seldom becomes acquainted with more than one particular se- 
ries, which enables him to examine a question only in a single 
point of view. 

Nothing can be more idle than the opposition of theory to 
practice! What is theory, if it be not a knowledge of the 
laws which connect effects with their causes, or facts with 
facts? And who can be better acquainted with facts, than the 
theorist who surveys them under all their aspects, and com- 
prehends their relation to each other? And what is practice* 
without theory, but the employment of means without know- 
ing how or why they act? In any investigation, to treat dis- 
similar cases as if they were analogous, is but a dangerous kind 
of empiricism, leading to conclusions never foreseen. 

Hence it is, that after having seen the exclusive or restric- 
tive system of commerce, a system founded on the opinion 
that one nation can only gain what another loses, almost uni- 
versally adopted throughout Europe after the revival of arts 
and letters; after having seen taxation without intermission 
perpetually increasing, and in some countries extending itself 
to a most enormous amount; and after having seen these same 
countries become more opulent, more populous and more pow- 
erful, than at the time they carried on an unrestricted trade 
and were almost entirely exempt from public burdens, the 
genei-ality of mankind have concluded, that national wealth 
and power were attributable to the restraints imposed on the 
application of industry, and to the taxes levied from the in- 
comes of individuals. Shallow thinkers have even pretended 
that this opinion was founded on facts, and that every different 
one was the offspring of a wild and disordered imagination. 

It is, however, on the contrary evident, that the supporters 
of the opposite opinion embraced a wider circle of facts, and 
understood them much better than their opponents. The very 
remarkable impulse given to the industry of the free states of 
Italy during the middle ages, and in the Hanse towns of the 
North of Europe, the spectacle of riches it exhibited in both, 
the shock of opinions occasioned by the crusades, the jDrogi-ess 
of the arts and sciences, the improvement of navigation and 

astrous period, when foreig-n commerce was destroyed, and the national re- 
sources of every description rapidly declining, boasted of having- proved by 
indabitable calculations, that the country was in a hig-her state of prosperity 
than it ever before had been. 

* Bv the term practice, is not here meant the manual skill which enables 
the artificer or clerk to execute with greater celerity and precision what- 
ever he peiforms daily, and which constitutes his peculiar talent; but the 
method pursued in superintending and administering public or private 
affairs. 



INTRODUCTION. XXV 

consequent discovery of the route to India and of the conti- 
nent of America, as well as a succession of other less import- 
ant events, were all known to them as the true causes of the 
increased opulence of the most ingenious nations on the globe. 
And, although they were aware that this activity had received 
successive checks, they at the same time knew that it had been 
freed from more oppressive obstacles. In consequence of the 
authority of the feudal lords and barons declining, the intercourse 
between the different provinces and states could no longer be 
interrupted; roads became improved, travelling more secure, 
and laws less arbitrary; the enfranchised towns, becoming im- 
mediately dependent upon the crown, found the sovereign in- 
terested in their advancement; and this enfranchisement, which 
the natural course of things, and the progress of civilization 
had extended to the country, secured to every class of pro- 
ducers the fruits of their industry. In every part of Europe 
personal freedom became almost generally respected; if not 
from a more improved organization of political society, at least 
from the influence of public sentiment. Certain prejudices, 
such as branding with the odious name of usury, all loans upon 
interest, and attaching the importance of nobility to idleness, 
had begun to decline. Noris this all: enlightened individuals 
have not only remarked the influence of these, but of many 
other analogous facts; it has been perceived by them, that the 
decline of prejudices has been favourable to the advancement 
of science, or to a more exact knowledge of the immutable 
laws of nature; that this improvement in the cultivation of 
science has itself been favourable to the progress of industry, 
and industry to national opulence. From such an induction 
of facts they have been enabled to conclude, with much greater 
certainty than the unthinking multitude, that although many 
modern states in the midst of taxation and restrictions have 
risen to opulence and power, it is not owing to these restraints 
on the natural course of human affairs, but in spite of such 
powerful causes of discouragement. The prosperity of the 
same countries would have been much greater, had they been 
governed by a more liberal and enlightened policy.* 

To obtain a knowledge of the truth, it is not then necessary 
to be acquainted with a great number of facts, as with sucli as 
are essential and have a direct and immediate influence; and 
above all, to examine them under all their aspects, to be enabled 

* Hence it is, that nations seldom derive any benefit fi'om the lessons of 
experience. To profit liy them, the community at large must be enabled 
to seize tlie connexion between causes and their consequences; which at 
once supposes a vei'y high degree of intelligence and a rare cajnicity for 
reflection. Whenever mankind sliall be in a situation to profit by experi- 
ence, they will no longer require her lessons; plain sound sense will then be 
sufficient. This is one i"eas<u) of our being siibject to tlie necessity of coi>" 
stant conti'ol. All tl)at a people can desire is, fhat laws slioukl be made con- 
ducive to the general interest of society, and carried into effect, a problem 
■which different political constitutions more <av less imperfectly solve. 
4^ 



XXVI INTRODUCTION. 

to deduce from them legitimate consequences, and be assured 
that the effects ascribed to them do not in reality proceed from 
other causes. Every other knowledge of facts is like the eru- 
dition of an almanack, a mere compilation from which nothing 
results. And it may be remarked, that this sort of informa- 
tion is peculiar to men of clear memories and clouded judg- 
ments; who declaim against the best established doctrines, the 
fruits of the most enlarged experience and profoundest rea- 
soning; and whilst inveighing against system, whenever 
their own routine is departed from, are precisely those most 
under its influence, and who defend it with stubborn folly, fear- 
ful rather of being convinced, than desirous of arriving at cer- 
tainty. 

Thus, if from all the phenomena of production, as well as 
from the experience of the most extensive commerce, you de- 
monstrate that a free intercourse between nations is recipro- 
cally advantageous, and that the mode found to be most bene- 
ficial to individuals in transacting business with foreigners, 
must be equally so to nations, men of contracted views and 
high presumption will accuse you of system. Ask them for 
their reasons, and they will immediately talk to you of the 
balance of trade; will tell you it is clear that a nation must 
be ruined by exchanging its money for merchandize — in itself 
a system. Some will assert that circulation enriches a state, 
and that a sum of money, by passing through twenty different 
hands, is equivalent to twenty times its own value; others, that 
luxury is favourable to industry, and economy ruinous to every 
branch of commerce — both mere systems; and all will appeal 
to facts in support of these opinions, like the shepherd, who 
upon the faith of his eyes affirmed that the sun, which he saw 
rise in the morning and set in the evening, during the day 
traversed the whole extent of the heavens; treating as an idle 
dream the laws of the planetary world. 

Persons, moreover, distinguished by their attainments in 
other branches of knowledge, but ignorant of the principles of 
this, are too apt to suppose that alDsolute truth is confined to 
the mathematics and to the results of careful observation and 
experiment in the natural sciences; imagining, that the moral 
and political sciences contain no invariable facts or indisputa- 
ble truths, and therefore can not be considered as genuine 
sciences, but merely hypothetical systems, more or less in- 
genious, but purely arbitrary. The opinion of this class of 
philosophers is founded upOn the want of agreement among 
the writers who have investigated these subjects, and from 
the wild absurdities taught by some of them. But, what 
science has been free from extravagant hypotheses? Howjmany 
years have elapsed since those most advanced have been al- 
together disengaged from system? On the contrary, do we 
not still see men of perverted understandings attacking the 
best established positions? Forty years have not elapsed, 
since water, so essential to our very existence, and the atmos- 



INTRODUCTION. XXVll 

phere in which we perpetually breathe, have been accurately 
analysed; the experiments and demonstrations nevertheless 
upon which this doctrine is founded, are continually assailed; 
although repeated a thousand times in different countries, by 
the most acute and cautious experimenters. A want of agree- 
ment exists in relation to a description of facts much more 
simple and obvious than the most part of those in moral and 
political science. Are not natural philosophy, chemistry, bo- 
tany, mineralogy and physiology, still fields of controversy, 
in which opinions are combated with as much violence and 
asperity as in Political Economy? The same facts are, indeed, 
observed by both parties, but are classed and e?^piained differ- 
ently by each; and it is worthy of remark, thar'in the secon- 
tests, genuine philosophers are not arrayed against pretenders. 
Leibnitz and Newton, Linnaeus and Jussieu, Priestly and 
Lavoisier, Desaussure and Dolomieu were all men of uncom- 
mon genius, who, however, did not agree in their philosophi- 
cal systems. But have not the sciences they taught an exist- 
ence, notwithstanding these disagreements?* 

In like manner, the general facts constituting the sciences of 
Politics and Morals exist independent!}^ of all controversy. 

* " The controversies," saj^s Col. Torrens, in his ' Essay on the Production 
ofWealth,' pubhshed in 1821, "which at present exist amongst the most cele- 
brated masters of Political Economy, have been brought forward by a lively 
and ingenious author as an objection against the study of the science. A 
similar objection might have been urged, in a certain stage of its progress, 
against every branch of human knowledge. A few years ago, when the bril- 
liant discoveries in chemistry began to supersede the ancient doctrine of phlo- 
giston controversies, analogous to those which now exist amongst political 
economists, divided the professors of natural knowledge; and Dr. Priestly, 
like Mr. Malthus, appeared as the pertinacious champion of the theories which 
the facts established by himself had so largely contributed to overthrow. 
In the progress of the human mind a period of controversy amongst the cul- 
tivators of any branch of science must necessarily precede the period of their 
unanimity. But this, instead of furnishing a reason for abandoning the pur- 
suits of science while its first principles remain in uncertainty, should stimu- 
late us to prosecute our studies with more ardour and perseverance, until 
upon every question within the compass of the human faculties, doubt is 
removed and certainty attained. With respect to Political Economy, the 
period of controversy is passing away, and that of unanimity rapidly ap- 
proaching. Twenty years hence there will scarcely exist a doubt respect- 
ing any of its fundamental principles," 

And in the preface of the third edition of his ' Essay on the External Corn 
Trade,' published in 1826, Col. Torrens makes these farther remarks: " On a 
former occasion, the author ventured to predict, that, at no distant period, con- 
troversy amongst the professors of Political Economy would cease, and unan- 
imity prevail, respecting the fundamental principles of the science. He 
thinks he can already perceive the unequivocal signs of the approaching 
fulfilment of this prediction. Since it was hazarded, two works have ap- 
peared, each of which, in its own peculiar line, is eminently calculated to 
correct the errors which previously prevailed. These publications are, 
" A Critical Dissertation on the Nature, Causes, and Measures of Value, by 
an anonymous author;" and " Thoughts and Details on High and Low 
Prices, " by Mr. Tooke." 



XXVlll INTRODUCTION. 

Hence the advantage enjoyed by every one who, from dis- 
tinct and accurate observation, can establish the existence of 
these general facts, demonstrate their connexion and deduce 
their consequences. They as certainly proceed from the na- 
ture of things as the laws of the material world. We do not 
imagine them; they are results disclosed to us by judicious ob- 
servation and analysis. Sovereigns, as well as their subjects, 
bow to their authority, and never can violate them with im- 
punity. 

General facts, or if you please the general laws which facts 
follow, are styled principles whenever it relates to their ap- 
plication ; that is to say, the moment we avail ourselves of them 
in order to ascertain the rule of action of any combination of 
circumstances presented to us. A knowledge of principles 
furnishes the only certain means of uniformly conducting any 
inquiry with success. 

Political Economy, in the same manner as the exact sciences, 
is composed of a few fundamental principles, and of a great 
number of corollaries or conclusions drawn from these princi- 
ples. It is essential, therefore, for the advancement of this 
science, that these principles should be strictly deduced from 
observation ; the number of conclusions to be drawn from them 
may afterwards be either multiplied or diminished, at the dis- 
cretion of the inquirer, according to the object he proposes. 
To enumerate all their consequences and give their proper 
explanations, would be a work of stupendous magnitude and 
necessarily incomplete. Besides, the more this science shall 
become improved and its influence extended, the less occa- 
sion will there be to deduce consequences from its princi- 
ples, as these will spontaneously present themselves to every 
eye; and being within the reach of all, their application will 
be readily made. A treatise on Political Economy will then 
be confined to the enunciation of a few general principles, 
not requiring even the support of proofs or illustrations; be- 
cause these will be but the expression of what every one will 
know, arranged in a form convenient for comprehending 
them, as well in their whole scope as in their relation to each 
other. 

It would, however, be idle to imagine that more precision, 
or a more steady direction could be given to this study, by the 
application of mathematics to the solution of its problems. 
'\ he values with which Political Economy is concerned, ad- 
mitting of the application to them of the terms plus and minus, 
arc indeed, within the range of mathematical inquiry; but be- 
ing, at the same time, subject to the influence of the faculties, 
the wants and the desires of mankind, they are not susceptible of 
any rigorous appreciation, and can not, therefore, furnish any 
data for absolute calculations. In political as well as in phy- 
sical science, all that is essential is a knowledge of the con- 
nexion between causes and their consequences. Neither the 



INTRODUCTION. XXIX 

phenomena of the moral or material world are subject to strict 
arithmetical computation.* 

* We may, for example, know that, for an)'- given year, the price of wine 
will infallibly depend upon the quantity to be sold, compared with the ex- 
tent of the demand. But if we are desirous of submitting' these two data 
to mathematical calculation, their ultimate elements must be decomposed 
before we can become thoroughly acquainted with them, or can, with any 
degree of precision, distinguish the separate influence of each. Hence, it 
is not only necessary to determine what will be the product of the succeed- 
ing vintage, while yet exposed to the vicissitudes of the weather, but the 
quality it will possess, the quantity remaining on hand of the preceding 
vintage, the amount of capital that will be at the disposal of the dealers, 
and require them, more or less expeditiously, to get back their advances: 
we must also ascertain the opinion that may be entertained as to the possi- 
bility of exporting the article, which will altogether depend upon our im- 
pressions as to the stability of the laws and government, that vary from day 
to day, and respecting which no two individuals exactly agree. All these 
data, and probably many others besides, must be accurately appreciated, 
solely to determine the quantity to be put in circulation, itself but one of 
the elements of price. To determine the quantity to be demanded, the price 
at which the commodity can be sold must already be known, as the demand 
for it will increase in proportion to its cheapness; we must know also the 
former stock on hand, and the tastes and means of the consumers, as vari- 
ous as their persons. Their ability to purchase will vary according to the 
more or less prosperous condition of industry in general and of their own 
in particular; their wants will vary also in the ratio of the additional means 
at their command of substituting one liquor for another, such as beer, cider, 
&c. I suppress an infinite number of less important considerations, more 
or less affecting the solution of the problem; for I question whether any in- 
dividual, really accustomed to the application of mathematical analysis, 
would even venture to attempt this, not only on account of the numerous 
data, but in consequence of the difficulty of characterizing them with any 
thing like precision, and of combining their separate influences. Such per- 
sons as have pretended to do it, have not been able to enunciate these 
questions in analytical language, without divesting them of their natural 
complication, by means of simpUfications, and arbitrary suppressions, of 
wliich the consequences, not properly estimated, always esseiitially change 
the condition of tlie problem, and pervert all its results; so that no other 
inference can be deduced from such calculations than from formulse.arbitra- 
rily assumed. Thus, instead of recognising in their conclusions that har- 
monious agreement, which constitutes the peculiar tihai'acter of rigorous 
geometrical investigation, by whatever method they may have been obtain- 
ed, we only perceive vague and uncertain inferences, whose differences are 
often equal to tlie quantities sought to be determined. What course is then 
to be pursued by a judicious inquirer in the elucidation of a subject so 
much involved? The same which would be pursued by him, under circum- 
stances equally difficult, which decide the greater part of the actions 
of his life: he will examine the immediate elements of the proposed pro- 
blem, and after having ascertained them with certainty, (which in Political 
Economy can be effected,) will approximately value their mutual influ- 
ences, with the intuitive quickness of an enliglitened understanding, itself 
only an instrument by means of which the mean result of a crowd of pro- 
babilities can be estimated, but never calculated with exactness. 

Cabanis, in describing the revolutions in the science of medicine, makes 
a remark perfectly analogous to this. ' The vital phenomena,' says he, 
' depend upon so many unknown springs, held together under such various 
circumstances, which observation vainly attempts to appreciate, that these 
problems, from not being stated with all their conditions, absolutely defy 



XXX INTRODUCTION. 

These considerations respecting the nature and object of Po- 
litical Economy, and the best method of obtaining a thorough 
knowledge of its principles, will supply us with the means of 
appreciating the efforts hitherto made towards the advance- 
ment of this science. 

The literature of the ancients, their legislation, their public 
treaties, and their administration of the conquered provinces, 
all proclaim their utter ignorance of the nature and origin of 
wealth, of the manner in which it is distributed, and of the 
effects of its consumption. They knew, what has always been 
known wherever the right of property has been sanctioned by 
laws, that riches are increased by economy and diminished 
by extravagance. Xenophon extols order, activity and intel- 
ligence as certain means of obtaining prosperity; but without 
deducing these maxims from any general law, or without be- 
ing able to show the connexion between causes and their con- 
sequences. He advises the Athenians to protect commerce 
and to receive strangers with kindness; yet so little was he 
aware to what extent this advice would be proper, that, upon 
another occasion, he expresses doubts, whether commerce be 
really profitable to the republic. 

Plato and Aristotle, it is true, notice some invariable rela- 
tions between the different modes of production, and the re- 
sults obtained from them. Plato sketches with tolerable fideli- 
ty,* the effects of the separation of social employments, but 
it is simply with a view to illustrate man's social character, 
and the necessity he is in, from his multifarious wants, of 
uniting in extensive societies, in which each individual may 
be exclusively occupied with one species of production. His 
view is entirely a political one; and he has deduced from it no 
other conclusion. 

In his Politics, Aristotle goes farther. He distinguishes 
natural from artificial production. He styles natural, what- 

calculation. Hence, whenever writers on mechanics have endeavoured to 
subject the laws of life to their methods, they have furnished the scientific 
world with a remarkable spectacle, well entitled to our most serious con- 
sideration. The terms they employed were correct, the process of rea- 
soning strictly logical, and, nevertheless, all the results were erroneous, 
further, although the language, and the method of employing it, were 
the same among all the calculators, each of them obtained distinct and 
different results; and it is by the application of this method of investigation 
to subjects to which it is altogether inapplicable, that systems the most 
whimsical, fallacious and contradictory, have been maintained.' 

D'Alembert, in his treatise on Hydrodynamics, acknowledges that the 
velocity of the blood in its passage through the vessels entirely resists every 
kind of calculation. Senebier made a similar observation in his Essai sur 
I'Art d'ohserver, (vol. 1, page 81.) 

Whatever has been said, by able teachers and judicious philosophers, in 
relation to our conclusions in natural science, is much more applicable to 
moral; and points out the cause of our always being misled in Political 
Economy, whenever we have subjected its phenomena to mathematical cal- 
culation. In such case it becomes the most dangerous of all abstraction. 

* Republic, Book II. 



INTRODUCTION. XXXl 

ever creates those objects of consumption required by a family, 
or, at most, whatever is obtained by exchanges in kind. No 
other advantage, according to him, is derived from real pro- 
duction; artificial gain he condemns. Besides, he does not 
support these opinions by any reasoning founded upon accurate 
observation. From the manner in which he expresses him- 
self in relation to the effect of savings and loans on interest, it 
is evident that he knew nothing of the nature and employment 
of capital. 

What can we expect from nations still less advanced in ci- 
vilization than the Greeks? We may recollect that a law of 
Egypt obliged the son to adopt the profession of his father. 
This, in certain cases, was to require the creation of a greater 
quantity of products than the particular state of society called 
for; to oblige an individual, in order to obey the law, to ruin 
himself and to continue the exercise of his productive func- 
tions, whether in possession of capital or not; which is altoge- 
ther absurd.* The Romans, in treating every branch of in- 
dustry, except agriculture (and we know not why,) with 
contempt, betray the same ignorance. Their pecuniary trans- 
actions must be numbered amongst their most unskilful ope- 
rations. 

The moderns, even after having freed themselves from the 
barbarism of the middle ages, have not a very long time been 
more advanced. We shall have occasion to notice the stupidi- 
ty of a multitude of laws relating to the Jews, to the interest 
of money, and to money itself Henry IV. granted to his fa- 
vourites and mistresses, as favours which cost him nothing, 
the permission to practise a thousand petty extortions, and to 
collect for their own benefit from various branches of com- 
merce as many petty taxes. He authorized the count of Sois- 
sonsto levy a duty of fifteen sous upon every bale of merchan- 
dise which should be exported from the kingdom!! 

In every branch of knowledge, example has preceded pre- 
cept. The fortunate enterprises of the Portuguese and Span- 
iards during the fifteenth century, the active industry of Ven- 
ice, Genoa, Florence, Pisa, the provinces of Flanders, and the 
free cities of Germany at this same epoch, gradually directed 
the attention of some philosophers to the theory of wealth. 

These inquiries, like almost every other in the arts and sci- 
ences after the revival of letters, originated in Italy. As far 
back as the sixteenth century, Botero was engaged in investi- 
gating the real sources of public prosperity. In the year 1613, 
Jintonio Serra composed a treatise, in which he particularly 
noticed the productive power of industry; but the title of his 

• When we find almost every historian, from Herodotus to Bossuet, boast- 
ing of this and other similar laws, it will be seen how important it is, that 
all who undertake to write histoi-y should have some knowledge of the 
science of Political Economy. 

f See Sully's memoirs. Book xvi. 



XXXlt INTRODUCTION. 

work sufficiently indicates its errors. Wealth, according to his 
hypothesis, consisted only of gold and silver.* Davanzati 
wrote upon money and upon exchange; and at the beginning 
of the eighteenth century, fifty years before the time of Ques- 
nay, Bandini of Sienna had shown, both from reasoning and 
experience, that there never had been a scarcity of food, ex- 
cept in those countries wherethe government had itself interfer- 
ed to supply the people. Belloni, a banker at Rome, in the year 
1750, published a dissertation on commerce, evincing his in- 
timate acquaintance with the nature of money and exchanges, 
although at the same time infected with the theory of the ba- 
lance of trade. His labours were rewarded by the Pope with 
the title of marquess. Carli, before Dr. Smith, demonstrated 
that the balance of trade neither taught nor proved anything. 
Jilgarotti, whose writings on other subjects Voltaire has made 
known, wrote also upon the science of Political Economy; 
and the little he has left exhibits the accuracy and extent of 
his knowledge, as well as his acuteness. He confines himself 
so rigidly to facts, and so uniformly founds his speculations on 
the nature of things, that although he did not get possession of 
the proof of his principles, and of their relation to each other, 
he has nevertheless guarded himself against every thing like 
hypothesis and system. In 1764, Genovesi commenced a 
course of public lectures on Political Economy, in the chair 
founded at Naples by the care of the highly esteemed and 
AearnQA Intieri. In consequence of this example, other pro- 
fessorships of Political Economy were afterwards established 
at Milan, and more recently in most of the universities in 
Germany and Russia. 

In 1750, the abbe Galiani, so well known since from his 
connexion with many of the French philosophers, and by his 
Dialogues on the Corn Trade, although at that time a very 
young man, published a Treatise on Money, which discovered 
such uncommon talents and information, as to induce a belief 
that he had been assisted in the composition of his work by the 
abbe Intieri and the Marquess oi Rinuccini. Its merits, how- 
ever, appear to be of a description similar to those the author's 
writings always afterwards displayed; genius united with eru- 
dition, carefulness in always ascending to the nature of things; 
and an animated and elegant style. 

One of the most striking peculiarities of this work, is its con- 
taining some of the rudiments of the doctrine of Adam Smith, 
and, among others, that labour is the sole creator of the value 
of things or of wealth;ta principle although not rigorously true, 

* Breve Trattato delle cause die possono far ahondare Uregni d'oro et d'ar- 
gento dove non sono miniere. 

-j- " Entro ora a dire della fatica, la quale, non solo in tutte le opere que 
sono intieramente dell' arte come lepitture, sculture, intagli, etc., ma anchi 
in molti corpi, come sono i mineral!, i sasci, le piante spontanee delle selve, 
etc. e I'unica che da valore alia cosa. La quantita della materia non per 



INTKODUCTION. XXXlll 

as will be made manifest in the course of this work, but which, 
pushed to its ultimate consequences, would have put Galiani in 
the way of discovering and completely unfolding the phenome- 
na of production. Dr. Smith, who was about the same time a 
professor in the university of Glasgow, and then taught this 
doctrine, which has since acquired so much celebrity, in all 
probability had no knowledge of a work in the Italian lan- 
guage published at Naples by a young man then hardly known, 
and whom he has never quoted. But even had he known it, a 
truth can not with so much propriety be said to belong to its 
fortunate discoverer, as to the inquirer who first demonstrates 
that it must be so, and perceives its consequences. Although 
the existence of universal gravitation had been previously con- 
jectured by Kepler and Pascal, the discovery does not the less 
oelong to Newton.* 

In Spain, Mvarez Osorio and Martinez-de-mata have de- 
livered discourses on Political Economy, the publication of 
which we owe to the enlightened patriotism of Campomanes. 
Moncada, Navarrette, Ustaritz, Ward, and Ulloa have 
written on the same subject. These esteemed authors, like 
those of Italy, entertained many sound views, verified various 
important facts, and supplied a number of laborious calcula- 
tions; but from their inability to establish them upon the fun- 
damental principles of the science, which Avere not then 
known, they have often been mistaken both as to the end as 
well as the means of prosecuting this stud}-; and amidst a va- 
riety of useless disquisitions have only cast an uncertain and 
deceptive light.t 

altro coopera in questi corpi al valore se non parche aumeiita o seetna la 
fatica." (Galiani, della Moneta. Lib. I, cap. 2.) 

"In relation to labour I will remark, that not only in tlie productions 
which are entii-ely the work of art, as in painting, sculpture, engraving-, Sec. 
but likewise in the productions of nature, as on metals, minerals and plants, 
their value is entirely derived from tlie labour bestowed on tiieir creation. 
The quantity of matter aft'ects the value of things only so far as it requires 
more or less labour." 

In the same chapter Galiani also remarks, that irian, that is to say his la- 
bour, is the only correct measure of value. This, also, according- to Dr. 
Smith, is a principle; although considered by me as an error. 

* This same Galiani, in the same work remarks, that whatever is gained 
by some must necessarily be lost by others; in this way proving, that a very 
ingenious writer may not even know how to deduce the most simple conclu- 
sions, and may pass by the truth without perceiving it. For, if wealth can 
be created by labour, there may then be a new description of wealth in the 
world, not taken from any body. Indeed this author, in his Dialogues on 
the Corn Trade, published in France a longtime afterwards, has himself, in a 
very peculiar manner, pronounced his own condemnation. " A truth," he 
observes, "which is brought to light by pure accident, like a musiiroom in 
a meadow, is of no value; we can not make use of it, if we are ignorant of its 
origin and consequences; or how and by what chain of reasoning it is de- 
rived." 

f From my own inability of judging of tlie merits of such of tliese writers 
whose works have not been translatecl, I have availed myself of the opinions 
of one of the translators of this Treatise into the Spanish language, Don Jose 
5 



XXXIV INTRODUCTION. 

In France the science of Political Economy, at first, was only- 
considered in its application to public finances. Sully remarks 
correctly enough, that agriculture and commerce are the two 
teats of the state; but from a vague and indistinct conception of 
the truth. The same observation may be applied to Vauban, 
a man of a sound practical mind, who, although in the army, 
was a philosopher and the friend of peace, and who be- 
ing deeply afflicted with the misery into which his country had 
been plunged by the vain glory of Louis the Fourteenth, pro- 
posed a more equitable assessment of the taxes, as a means of 
alleviating the public burdens. 

Under the influence of the Regent, opinions became unset- 
tled; bank notes, supposed to be an inexhaustible source of 
wealth, were but the means of swallowing up capital, of ex- 
pending what had never been earned, and of making a bank- 
ruptcy of all debts. Moderation and economy were turned in- 
to ridicule. The courtiers of the prince, either by persuasion 
or corruption, encouraged him in every species of extrava- 
gance. At this period, the maxim that a state is enriched by 
luxury was reduced to system. All the talents and learning of 
the day were exerted in gravely maintaining such a paradox in 
prose, or in embellishing it with the more attractive charms of 
poetry. The dissipation of the national treasures was really 
supposed to merit the public gratitude. This ignorance of first 
principles, with the debauchery and licentiousness of the duke 
of Orleans, conspired to effect the ruin of the kingdom. During 
the long peace maintained by cardinal Fleury, France recover- 
ed a little; the insignificant administration of this weak minis- 
ter at least proving, that the ruler of a nation may achieve 
much good by abstaining from the commission of evil. 

The steadily increasing progress of diflferent branches of in- 
dustry, the advancement of the sciences, whose influence up- 
on wealth we shall have occasion hereafter to notice, and the 
direction of public opinion, at length estimating national pros- 
perity as being of some importance, caused the science of Po- 
litical Economy to enter into the contemplation of a great num- 
ber of writers. Its true principles were not then known; but 
since, according to the observation of Fontenelle, our condi- 
tion is such, that we are not permitted at once to arrive at the 
truth, but must previously pass through various species of er- 
rors and various grades of follies, ought these false steps to be 
considered as altogether useless, which have taught us to ad- 
vance with more steadiness and certainty? 

Montesquieu, who was desirous of considering laws in all 
their relations, inquired into their influence on national wealth. 
The nature and origin of wealth he should first have ascertain- 
ed; of which, however, he did not form any opinion. We are, 
nevertheless, indebted to this distinguished author for the first 

(^ueypo, an individual alike distinguished by his abilities and patriotism, 
whose remarks I have only copied. 



MTRODtiCTIOX. XXXV 

philosophical e^camination of the principles of legislation; and, 
in this point of view, he, perhaps, may be considered as the 
master of the English writers, who now are so generally es- 
teemed as being ours; just in the same manner as v oltaire has 
been the master of their best historians, who now furnish us 
with models worthy of imitation. 

About the middle of the eighteenth century, certain princi- 
ples in relation to the origin of wealth, advanced by Doctor 
Quesnay, made a great number of proselytes. The enthusi- 
astic admiration these persons manifested for their founder, 
the scrupulous exactness with which they have uniformly 
since followed the same dogmas, and the energy and zeal they 
displayed in maintaining them, have caused them to be consi- 
dered as a sect, which lias received the name of Economists. 
Instead of first observing the nature of things, or the manner 
in which they take place, of classifying these observations and 
deducing from them general propositions, they commenced 
by laying down some abstract general positions, which they 
styled axioms, from supposing them to contain intuitive evi- 
dence of their own truth. They then endeavoured to accommo- 
date the particular facts to them, and to infer from them their 
laws; thus involving themselves in the defence of maxims evi- 
dently at variance with common sense and universal experi- 
ence,* as will appear hereafter in various parts of this work. 
Their opponents had not themselves formed any more correct 
views of the subjects in controversy. With considerable learning 
and talents on both sides, they were cither wrong or right by 
chance. Points were contested that should have been con- 
ceded, and opinions, unquestionably false, acquiesced in; in 
short, they combated in the clouds. P'olt aire, who so well knew 
how to detect the ridiculous, wherever it was to be found, in 
his Homme aux quarante tcus, satirized the system of the 
Economists; yet, in exposing the tiresome trash of Mercier de 
la Hivihre and the absurdities contained in Mirabeaii's L'ainl 
des Hommes, was himself unable to point out the errors of 
either. 

The economists, by promulgating some important truths, by 
directing a more general attention to objects of public utility, 
and by exciting discussions, which although at that time of no 
advantage, have since led to more accurate investigations, have 
unc^uestionably done much good.t In representing agricultu- 
ral mdustry as productive of wealth, they were not deceived; 
and, perhaps, the necessity they were in of unfolding the na- 
ture of production, has caused the further examination of this 

* When they maintain, for example, that a fall in the price of food is a pub- 
lic calamity. 

f Among the discussions they provoked, we must not forget the entertain- 
ing Dialogues on the Corn Trade by the Abbe Gallani, in which the sci- 
ence of Political Economy is treated in the humorous manner of Tristram 
Shandy. An important truth is asserted, and when the autlioris called up- 
on for its proof, he replies with some ingenious pleasantry. 



XXXVl INTRODUCTION. 

important phenomenon, which has conducted their successors 
to its entire development. On the other hand, the labours of the 
Economists have been attended with serious evils; the many- 
useful maxims they decryed, their sectarian spirit, the dogmati- 
cal and abstract language of the greater part of their writings, 
and the tone of inspiration pervading them, gave currency to 
the opinion, that all who were engaged in such studies were 
but idle dreamers, whose theories, at best only gratifying lite- 
rary curiosity, were wholly inapplicable in practice.* 

No one, however, has ever denied that the writings of the 
Economists have uniformly been favourable to the strictest 
morality and to the liberty, which every human being ought 
to possess, of disposing of his person, fortune and talents, ac- 
cording to the bent of his inclination; without which, individu- 
al happiness and national prosperity are but empty and un- 
meaning sounds. These opinions alone entitle their authors 
to universal gratitude and esteem. I do not, moreover, be- 
lieve that a dishonest man or bad citizen can be found among 
their number. 

This is doubtless the reason why, since the year 1760, al- 
most all the French writers of any celebrity on subjects con- 
nected with Political Economy, without absolutely being en- 
rolled under the banners of the Economists, have, neverthe- 
less, been influenced by their opinions. Raynal, Condorcet, 
besides many others, will be found among this number. Con- 
dillac may also be enumerated among them, notwithstanding 
his endeavours to found a system of his own in relation to a 
subject which he did not understand. Many useful hints may- 
be collected from amidst the ingenious trifling of his work;t 
but, like the Economists, he almost invariably founds a prin- 
ciple upon some gratuitous assumption. Now, an hypotnesis 
may indeed be resorted to, in order to exemplify and elucidate 
the correctness of the general reasoning, but never can be suf- 

• The belief that moral and political science is founded upon chimerical 
theories, arises chiefly from our almost continually confounding- questions of 
right \v\th matters of fact. Of what consequence, for instance, "is the ques- 
tion so long agitated in the writings of the Economists, whether the sovereign 
power in a country is, or is not, the co-proprietor of the soil? The fact is, 
that in every country the government takes, or in the shape of taxes the 
people are compelled to furnish it, witli a part of the revenue drawn from 
real estate. Here then is a fact, and an important one; the consequence of 
certain facts, which we can trace up, as the cause of other facts (such as 
the rise in tlie price of commodities) to which we are led with certainty. 
Questions of right are always more or less matters of opinion; matters of fact. 
on the contrary, are susceptible of proof and demonstration. The former 
exercise but little influence over the fortunes of mankind; while the latter, 
inasmuch as facts grow out of each other, are deeply interesting to them; 
and, as it is of importance to us that some results should take place in prefer- 
ence to others, it is, therefore, essential to ascertain the means by which these 
may be obtained. The Social Contract of J. J. Rousseau, from being almost 
entirely founded upon questions of right, has thereby become, what I feel 
no hesitation in avowing, a work of at least but little practical utility. 

f Lw Commerce et du Governement consid^r^s I'un relativement H I'autre, 



INTRODUCTION. XXXvil 

ficient to establish a fundamental truth. Political Economy has 
only become a science, since it has been confined to the results 
of inductive investigation. 

Turgot was himself too good a citizen, not sincerely to es- 
teem as good citizens as the Economists; and, accordingly, 
when in power, he deemed it advantageous to countenance 
them. The Economists, in their turn, found their account in 
passing off so enlightened an individual and minister of state 
as one of their adepts; but the opinions of Turgot, however, 
were not borrowed from their school, but derived from the 
nature of things; and although on many important points of 
doctrine he may have been deceived, the measures of his ad- 
ministration, either planned or executed, are amongst the most 
brilliant ever conceived by any statesman. There can not 
therefore be a stronger proof of the incapacity of his sovereign, 
than his inability to appreciate such exertions, or if capable of 
appreciating them, in not knowing how to afford them support. 

The Economists not only exercised a particular sway over 
French writers; but also had a very remarkable influence over 
many Italian authors, who even went beyond them. Beccaria, 
in a course of public lectures at Milan,* first analysed the true 
functions of productive capital. The Count de Verri, the 
countryman and friend of Beccaria, and worthy of being so, 
both a man of business and an accomplished scholar, in his 
Meditazione suW Econotnia politica, published in 1771, ap- 
proached nearer than any other writer before Dr. Smith, to the 
real laws which regulate the production and consumption of 
wealth. Filangieri, whose treatise on political and economi- 
cal laws was not given to the public until the year 1780, ap- 
pears not to have been acquainted with the work of Dr. Smith, 
published four years before. The principles de Verri laid down 
are followed by Filangieri, and even received from him a 
more complete development; but although guided by the torch 
of analysis and deduction, he did not proceed from the most 
fortunate premises to the immediate consequences which con- 
firm them, at the same time that they exhibit their application 
and utility. 

None of these inquiries could lead to any important result. 
How, indeed, was it possible to become acquainted with the 
causes of national prosperity, when no clear or distinct notions 
had been formed respecting the nature of wealth itself? The 
object of our investigations must be thoroughly perceived be- 
fore the means of attaining it are sought after. In the year 
3 776, Adam Smith, educated in that school in Scotland which 
has produced so many scholars, historians and philosophers of 
the highest celebrity, published his Inquiry into the Nature 

• See the syllabus of his lectures, which was printed for the first time, in 
the year 1804, in the valuable collection published at Tililan by Pictro Cus- 
todi, under the title of Scriitori classid italiani di Economia politica. It was 
unknown to me until after the publication of the first edition of this work 
in 1803. 



XXXVni INTRODUCTION. 

and Causes of the Wealth of Nations. In this work, its au- 
thor demonstrated that wealth was the exchangeable value of 
things; that its extent was proportional to the number of things 
in our possession having value; and, that inasmuch as value 
could be given or added to matter, that wealth could be cre- 
ated and engrafted on things previously destitute of value, and 
there be preserved, accumulated or destroyed.* 

In inquiring into the origin of value. Dr. Smith found it to 
be derived fom the labour of man, which he ought to have 
denominated industry, from its being a more comprehensive 
and significant term than labour. From this fruitful demon- 
stration he deduced numerous and important conclusions re- 
specting the causes which, from checking the development 
of the productive powers of labour, are prejudicial to the 
growth of wealth; and as they are rigorous deductions from 
an indisputable principle, they have only been assailed by in- 
dividuals, either too careless to have thoroughly understood 
the principle, or of such perverted understandings as to be 
wholly incapable of seizing the connexion or relation between 
any two ideas. Whenever the Inquiry into the Wealth of 
Nations is perused with the attention it so well merits, it will 
be perceived, that until the epoch of its publication the science 
of Political Economy did not exist. 

From this period gold and silver coin were considered as 
constituting only a portion, and but a small portion, of Na- 
tional Wealth; a portion the less important, because less suscep- 
tible of increase, and because its uses can be more easily sup- 
plied than those of many other articles equally valuable ; and 
hence it results that a community, as well as its individual 
members, are in no way interested in obtaining metallic mo- 
ney beyond the extent of this limited demand. 

These views, we conceive, first enabled Dr. Smith to ascer- 
tain, in their whole extent, the true functions of money; and 
the applications of them, which he made to bank notes and pa- 
per money, are of the utmost importance in practice. They 
afibrd him the means of demonstrating, that productive capi- 
tal does not consist of a sum of money, but in the value of the 
objects made use of in production. He arranged and analysed 

* During the same year that Dr. Smith's work appeared, and immediate- 
ly before its publication, Browne Dignan, publislied in I^ondon, written in 
the French lang-uag-e, his Essai sur les principes de I'Uconomie publique, con- 
taining the following remarkable passage: " The class of reproducers in- 
cludes all who, uniting their labour to that of the vegetative power of the 
soil, or modifying the productions of nature in the processes of their sevei'al 
arts, create in some sort a new value, of which the sum total forms what is 
called the annual reproduction." 

This striking passage, in which reproduction is more clearly characterised 
than in any part of Dr. Smith's writings, did not lead its author to any im- 
portant conclusions, but merely gave birth to a few scattered hints. A want 
of connexion in his views, and of precision in his terms, have rendered his 
Essay so vague and obscure, that no instruction whatever can be derived 
from it. 



INTRODUCTION. XXXIX 

the elements of which productive capital is composed, and 
pointed out their true functions.* 

Many principles strictly correct had often been advanced 
prior to the time of Dr. Smith ;t he, however, was the first 
author who established their truth. Nor is this all: he has 
furnished us, also, with the true method of detecting errors; 
he has applied to Political Economy the new mode of scienti- 
fic investigation, namely, of not looking for principles abstract- 
ly, but by ascending from facts the most constantly observed 
to the general laws which govern them. As every fact may 
be said to have a particular cause, it is in the spirit of sys- 
tem to determine the cause; it is in the spirit of analysis, to 
be solicitous to know why a particular cause has produced this 
efiect, in order to be satisfied that it could not have been pro- 
duced by any other cause. The work of Dr. Smith is a suc- 
cession of demonstrations, which has elevated many proposi- 
tions to the rank of indisputable principles, and plunged a still 
greater number into that imaginary gulph, into which extrava- 
gant hypotheses and vague opinions for a certain period strug- 
gle, before being forever swallowed up. 

It has been said that Dr. Smith was under heavy obligations 
to Steuart,X an author whom he has not once quoted, even 
for the purpose of refuting him. I can not perceive in what these 
obligations consist. In the conception of his subject. Dr. Smith 
displays the elevation and comprehensiveness of his views, 
whilst the researches of Steuart exhibit but a narrow and in- 
significant scope. Steuart has supported a system already main- 
tained by Colbert, adopted afterwards by all the French wri- 
ters on commerce, and steadily followed by most European 
governments; a system which considers national wealth as 
depending, not upon the sum total of its productions, but upon 
the amount of its sales to foreign countries. One of the most 
important portions of Dr. Smith's work is devoted to the re- 
futation 01 this theory. If he has not particularly refuted 
Steuart, it is from the latter not being considered by him as 

• This difficult and abstrase subject has not, perhaps, been treated by Dr. 
Smith with sufficient method and perspicuity. Owing- to this circum- 
stance, his inteUigent and acute countryman, lord Lauderdale, has compo- 
sed an entire treatise, in order to pi'ove that his lordship had completely 
failed in comprehending' this part of the Wealth of Nations. 

•)- In the article Grains, in the Encyclopedic, Quesnay had remarked, 
that " commodities, iwAjcA can he sold, ought always to be considered with- 
out distinction, either as pecuniary or real wealth, applicable to the pur- 
poses of whoever may make use of it." This, in reahty, is Dr. Smith's ex- 
changeable value. De Verri had observed, (chapter 3,) that reproduction 
was nothing more than the reproduction of value, and that the value of things 
constituted wealth. Galiani, as has been already noticed, had saidj that la- 
bour was the source of all value,- but Dr. Smith, nevertheless, made these 
views his own, by exhibiting, as we see, their connexion with all the other 
important phenomena, and in demonstrating them even by their consequen- 
ces. 

^ Sir James Steuart, author of a treatise on Political Economy. 



Xl INTRODUCTION. 

the father of his school, and from having deemed it of more 
importance to overthrow an opinion, then universally receiv- 
ed, than to confute the doctrines of an author, which, in them- 
selves, contained nothing peculiar. 

The Economists have also pretended, that Dr. Smith was 
under obligations to them. But to what do such pretensions 
amount? A man of genius is indebted to every thing around 
him; to the scattered lights which he has concentrated, to the 
errors which he has overthrown, and even to the enemies by 
whom he has been assailed; inasmuch as they all contribute to 
the formation of his opinions. But when out of these mate- 
rials he afterwards forms enlarged views, useful to his contem- 
poraries and posterity, it rather behoves us to acknowledge 
the extent of our own obligations, than to reproach him with 
what he has been supplied by others. Moreover, Dr. Smith 
has not been backward in acknowledging the advantages he 
had derived from his intercourse with tfie most enlightened 
men in France, and from his intimate correspondence with his 
friend and countryman Hume, whose essays on Political Eco- 
nomy, as well as on various other subjects, contain many just 
views. 

After having shown, as fully as so rapid a sketch will per- 
mit, the improvement which the science of Political Economy 
owes to Dr. Smith, it will not, perhaps, be useless to indicate, 
in as summary a manner, some of the points on which he has 
erred, and others which he has left to be elucidated. 

To the labour of man alone he ascribes the power of produ- 
cing values. This is an error. A more exact analysis demon- 
strates, as will be seen in the course of this work, that all va- 
lues are derived from the operation of labour, or rather from 
the industry of man, combined with the operation of those 
agents which nature and capital furnish him. Dr. Smith did 
not therefore obtain a thorough knowledge of the most im- 
portant phenomenon in production; this has led him into 
some erroneous conclusions, such, for instance, as attributing 
a gigantic influence to the division of labour, or rather to the 
separation of employments. This influence, however, is by 
no means inappreciable or even inconsiderable; but the great- 
est wonders of this description are not so much owing to any 
peculiar property in human labour, as to the use we make of 
the powers of nature. His ignorance of this principle pre- 
cluded him from establishing the true theory of machinery in 
relation to the production of wealth. 

The phenomena of production being now better known than 
they were in the time of Dr. Smith, have enabled his succes- 
sors to distinguish and to assign the difference found to exist 
between a real and a relative rise in prices;*" a difference whicii 
furnishes the solution of numerous problems, otherwise whol- 
ly inexplicable. Such, for example, as the following: Does a 

* tScc Chapter third, Book second. 



INTRODUCTION. xH 

tax, or any other impost, by enhancins; the price of commo- 
dities, increase the quantity of wealth'P The income of the 
jjrodKcer arising from the cost of production, why is not this 
income impaired by a diminution in the cost of production? 
Now it is the power of resolving these abstruse problems 
which, nevertheless, constitutes the science of Political Eco- 
nomy. t 

By the exclusive restriction of the term wealth to values 
fixed and realized in material substances, Dr. Smith has nar- 
rowed the boundary of this science. He should also have in- 
cluded under it values which, although immaterial, are not 
less real, such as natural or acquired talents. Of two individu- 
als equally destitute of fortune, the one in possession of a par- 
ticular talent is by no means so poor as the other. Whoever 
has acquired a particular talent C . the expense of an annual 
sacrifice, enjoys an accumulated capital; a description of wealth, 
notwithstanding its immateriality, so little imaginary, that, in 

* Dr. Smith has, in a satisfactory manner, estabhshed the difference be- 
tween the real and nominal prices of things, that is to say, between the 
quantity of real values which must be given to obtain a commodity, and the 
name which is given to the sum of these values. Tlie difference here al- 
luded to, arises from a more perfect analysis, in which the real price itself 
is decomposed. 

\ It is not, for example, until after the manner in which production takes 
place is thoroughly understood, that we can say how far the circulation of 
money and commodities have contributed towards it, and consequently 
wliat circulation is useful and what is not; otherwise, we should only talk 
notisense, as is daily done, respecting the utility of a quick circulation. My 
being oblig-ed to furnish a chapter on this subject (Book I, Chap. 16.) must 
be attributed to the inconsiderable advancement made in the science of 
Political Economy, and to the consequent necessity of directing our atten- 
tion to some of its more simple applications. The same remark is applica- 
ble to the twentieth chapter, in the same book, on the subject of temporary 
and permanent emigraVion, considered in reference to nalional luealth. Any 
person, liowever, Avell acquainted with the principles of this science, would 
find no difficulty in arriving at the same conclusions. 

The time is not distant when not only writers on finance, but on history 
and geography, will be required to possess a knowledge of at least the fun- 
damental principles of Political Econom3^ A modern treatise on Universal 
Geography, (vol. 2, page 602) a woi-k in other respects denoting extensive 
researcli and information, contains the following passage: "The number of 
inhabitants of a country isthe basis of every good system of finance; the more 
immerous is its population, the greater height will its commerce and manu- 
factures attain; and the extent of its military force be in proportion to the 
amount of its population." Unfoi'tunatel}^ every one of these positions may 
be erroneous. National revenue, necessarily consisting either of the income 
of the public property, or of the contributions, in the shape of taxes, drawn 
from the incomes of individuals, does not depend upon the number, but 
upon the wealth, and above all upon the incomes of the people. Now, an 
indigent multitude has the fewer contributions to yield, the more mouths 
it has to feed. It is not the numerical population of a state, but the capital 
and genius of its inhabitants, that most conduces to the advancement of its 
commerce; these benefit population much more than they ai'e benefited by 
it. Finally, tlie number of troops a government can maintain depends still 
less upon the extent of its population than upon its revenues; and it has 
been already seen that revenue is not dependent upon population, 

6 



Xlii INTRODUCTION. 

the shape of professional services, it is daily exchanged for 
gold and silver. 

Dr. Smith, who with so much sagacity unfolds the manner 
in which production takes place, and the peculiar circum- 
stances accompanying it in agriculture and the arts, on the 
subject of commercial production presents us with only obscure 
and indistinct notions. He, accordingly, was unable to point 
out with precision, the reason why, a'nd the extent to which, 
facilities of communication are conducive to production. 

He did not subject to a rigid analysis the different opera- 
tions comprehended under the general name of industry, or 
as he calls it, of labour, and, therefore, could not appreciate 
the peculiar importance of each of them in the business of pro- 
duction. 

His work does not furnish a satisfactory or well connected 
account of the manner in which wealth is distributed in socie- 
ty; a branch of Political Economy, it may be remarked, open- 
ing an almost new field for cultivation. The too imperfect 
views of economical writers respecting the production of wealth, 
precluded them from forming any accurate notions in relation 
to its distribution.* 

Finally, although the phenomena of the consumption of 
wealth are but the counterpart of its production, and although 
Dr. Smith's doctrine leads to its correct examination, he did 
not himself develop it; which precluded him from establish- 
ing numerous important truths. Thus, by not characterizing 
the two different kinds of consumption, namely, unproductive 
and reproductive, he does not satisfactorily demonstrate, that 
the consumption of values saved and accumulated in order to 
form capital, is as perfect as the consumption of values which 
are dissipated. The better we shall become acquainted with 
Political Economy, the more correctly shall we appreciate the 
importance of the improvements this science has received 
from him, as well as of those he left to be accomplished. t 

Such are the principal imperfections the Inquiry into the 
Nature and Causes of the Wealth of Nations contains, in rela- 
tion to its fundamental doctrines. The plan of the work, or, 
in other words, the manner in which these doctrines are un- 
folded, is liable to no less weighty objections. 

In many places the author is deficient in perspicuity, and al- 
most throughout is destitute of method. To understand him 
thoroughly, it is necessary to accustom one's self to collect and 
digest his views; a labour, at least in respect to some passages, 
he has placed beyond the reach of most readers; indeed, so 
much so, that persons otherwise enlightened, professing both 
to comprehend and admire them, have written on subjects he 

* Witness Turgofs Reflexions sur la formation et la distrihution des ricli- 
e.sses, in wliich he has introduced vai'ious views on both these subjects, ei- 
thei' entirely erroneous, or very imperfect. 

"t" Many odier points of doctrine^ besides those here noticed, have been 
either overlooked or but imperfectly analysed by Dr. Smith. 



INTKODUCTION. xlHl 

has discussed, namely, on taxes and bank notes as supplement- 
ary to money, without having understood any part of his the- 
ory on these points, which, nevertheless, forms one of the 
most beautiful parts of his inquiry. 

His fundamental principles are not established in the chap- 
ters assigned to their development. Many of them will be 
found scattered through the two excellent refutations of the 
exclusive or mercantile system and the system, of the Econo- 
ynists, but in no other parts of the work. The principles re- 
lating to the real and nominal prices of things, ai^e introduced 
into a dissertation on the value of the precious metals during 
the course of the last four centuries; and the author's opinions 
on the subject of money are contained in the chapter on Com- 
mercial Treaties. 

Dr. Smith's long digressions have, also, with great proprie- 
ty, been much censured. An historical account of a particu- 
lar law or institution, as a collection of facts, is in itself, doubt- 
less, highly interesting; but in a work devoted to the support 
and illustration of general principles, particular facts not ex- 
clusively applicable to these ends, can only unnecessarily over- 
load the attention. His sketch of the progress of opulence 
in the different nations of Europe after the fall of the Roman 
empire, is but a magnificent digression. The same remark is 
applicable to the highly ingenious disquisition on public edu- 
cation, replete as it is with erudition and sound philosophy, at 
the same time that it abounds with valuable instruction. 

Sometimes these dissertations have but a very remote con- 
nexion with his subject. In treating of public expenditures, 
he has gone into a very curious history of the various modes in 
which war was carried on by different nations at different 
epochs; in this manner accounting for military successes which 
have had so decided an influence on the civilization of many 
parts of the earth. These long digressions at times, also, are 
devoid of interest to every other people but the English. Of 
tins description is the long statement of the advantages 
Great Britain would derive from the admission of all of her co 
lonies into the right of representation in parliament. 

The excellence of a literary composition as much depends 
upon what it does not, as upon what it does contain. So many 
details, although in themselves useful, unnecessarily incumber 
a work designed to unfold the pinciples of Political Economy. 
Bacon made us sensible of the emptiness of the Aristotelian 
philosophy; Smith, in like manner, caused us to perceive the 
fallaciousness of all the previous systems of Political Econo- 
my; but the latter no more raised the superstructure of this 
science, than the former created logic. To both, however, our 
obligations are sufficiently great, for having deprived their 
successors of the deplorable possibility of proceeding, for any 
length of time, with success on an improper route.* 

* Since the time of Dr. Smith, both hi England and France, a variety of 



Xliv INTRODUCTION. 

We are not, however, yet in possession of an established 
text-book on the science of Political Economy, in which tlie 
fruits of an enlarged and accurate observation' are referred to 
general principles, that might be admitted by every reflecting 
mind; a work in which these results are so complete and well 
arranged, as to afford to each other mutual support, and that 
might every where, and at all times, be studied with advan- 
tage. To prepare myself for undertaking so useful a task, I 
have thought it necessary attentively to study what had 
been previously written on the same subject, and afterwards 
to forget it: to prosecute this investigation, that I might profit 
by the experience of the many competent inquirers who have 
preceded me; to endeavour to obliterate its impressions, not to 
be misled by any system, and at all times be enabled freely 
to consult the nature and course of things, as actually existing 
in society. Having no particular hypothesis to support, I am 
simply desirous of unfolding the manner in which wealth is 
produced, distributed, and consumed. A knowledge of these 
facts could only be acquired by observing them. It is the re- 
sult of these observations, within the reach of every inquirer, 
that are here given. The correctness of the general conclu- 
sions I have deduced from them, every one can judge of. 

It was but reasonable to expect from the lights of the age, 
and from that method of philosophizing which has so power- 
fully contributed to the advancement of other sciences, that I 
might at all times be able to ascend to the nature of things, 
and never lay down an abstract principle that was not imme- 
diately applicable in practice; so that, always compared with 
well established facts, any one could easil}'' find its confirma- 
tion by at the same time discovering its utility. 

Nor is this all: solid general principles, previously laid 
down, must be noticed, and briefly but clearly proved; those 
which had not been laid down must be established, and the 
whole so combined, as to satisfy us, that no material omission 
has taken place, nor any fundamental point been overlook- 
ed. The science must be stript of many false opinions; but 
this labour must be confined to such errors as are generally 
received, and to authors of acknowledged reputation. For 
what injury can an obscure writer or a discredited dogma ef- 

publications on Political Economy have made their appearance; some of 
considerable length, but seldom containing- any thing worthy of preserva- 
tion. The greater part of them are of a controversial charactei-, in which 
the principles of the science are merelj'- laid down for the purpose of main- 
taining a favourite hypothesis; but from which, nevertheless, many impor- 
tant facts, and even sound principles, when they coincide with the views of 
their authors, may be collected. The " Essaisur Ics finances dc la Grand- 
Bretagne," by Gentz, an apology for Mr. Pitt's system of finance, is of this 
description; so also is Thornton's Inquiry into tJienature and effects of paper 
credit, written with a view to justify the suspension of cash payments by the 
bank of England; as well as a great number of other works' on the same 
subject, and in relation to the corn laws. 



INTRODUCTION. xlv 

feet? The utmost precision must be given to the phraseology 
we employ, so as to prevent the same word from ever being 
understood in two different senses; and all problems be reduced 
to their simplest elements, in order to facilitate the detec- 
tion of any errors, and above all of our own. In fine, the doc- 
trines of the science must be conveyed in such a popular* 
form, that every man of sound understanding may be enabled 
to comprehend them in their whole scope and consequences, 
and be able to apply their principles to all the various circum- 
stances of life. 

The position maintained in this work, that the value of 
things is the measure of wealth, has been especially objected 
to. This, perhaps, has been my fault; I should have taken 
care not to be misunderstood. The only satisfactory repl}^ I 
can make to the objection, is to endeavour to give more perspi- 
cuity to this doctrine. 1-must, therefore, apologize to the own- 
ers of the former editions for the numerous corrections I have 
made in the present. It became my duly in treating a subject 
of such essential importance to the general welfare, to give it 
ail the perfection within my reach. 

Since the publications of the former editions of this work, 
various authors, some of whom enjoy a well merited celebri- 
ty,! have given to the world new treatises on Political Eco- 
nomy. It is not my province, either to pronounce upon the 
general character of these productions, or to decide whether 
the)7" do, or do not, contain a full, clear and well digested ex- 
position of the fundamental principles of this science. This 
much I can with sincerity say, that many of these works con- 
tain truths and illustrations well calculated greatly to advance 
the science, and from the perusal of which I have derived im- 

fortant benefit. But, in common with every other inquirer, 
am entitled to remark how far some of their principles, 
which at first sight appear to be plausible, arc contradicted by 
a more cautious and rigid induction of facts. 

It is, perhaps, a well founded objection to Mr. Ricardo, that 
he sometimes reasons upon abstract principles to which he 
gives too great a generalization. When once fixed in an hy- 
pothesis which can not be assailed, from its being founded up- 
on observations not called in question, he pushes his reason- 

* By a popular treatise, T do not mean a treatise for the use of persons, 
who neither know how to read, nor to make an}^ use of it. By this ex- 
pression, I mean a treatise not exclusively addressed to professional or sci- 
entific cultivators of this particular branch of knowledge; but one calcula- 
ted to be read by every intellig'eut and useful member of society. 

f Ricardo, Sismondi, and others. The fair sex begin also to perceive 
that they had done themselves injustice, in supposing- that they were une- 
qual to a branch of study destined to exercise so benign an influence over 
domestic happiness. In England a lady (Mrs. Marcet) has pubhshed a 
v/ork, ''Conversations on Folitical Economy,^' since translated into French; 
ill wliich the soundest principles are explained in a familiar and pkasinij 
style. 



xlvi INTRODUCTION. 

ings to their remotest consequences, without comparing their 
results with those of actual experience. In this respect resem- 
bling a philosophical mechanician, who, from undoubted proofs 
drawn from the nature of the lever, would demonstrate the 
impossibility of the vaults daily executed by dancers on the 
stage. And how does this happen? The reasoning proceeds 
in a straight line; but a vital force, often unperceived, and al- 
ways inappreciable, makes the facts differ very far from our 
calculations. From that instant nothing in the author's work 
is represented as it really occurs in nature. It is not sufficient 
to set out from facts; they must be brought together, steadily 
pursued, and the consequences drawn from them constantly 
compared with the effects observed. The science of Political 
Economy, to be of practical utility, should not teach, what 
must necessarily take place, if even deduced by legitimate 
reasoning, and from undoubted premises; it ought to show, in 
what manner that which in reality does take place, is the con- 
sequence of another fact equally certain. It should ascertain 
the chain which binds them together, and always establish from 
observation the existence of the two links at their point of 
connexion. 

With respect to the wild or antiquated theories, so often 
produced or reproduced by authors who possess neither suffi- 
ciently extensive nor well digested information to entitle 
them to form a sound judgment, the most effectual method of 
refuting them is to display the true doctrines of the science 
with still greater clearness, and to leave to time the care of 
disseminating them. We otherwise should be involved in 
interminable controversies, affording no instruction to the en- 
lightened part of society, and inducing the uninformed to be- 
lieve that nothing is susceptible of proof, inasmuch as every 
thing is made the subject of argument and disputation. 

Disputants, infected with every kind of prejudice, have with 
a sort of doctorial confidence remarked, that both nations and 
individuals sufficiently well understand how to improve their 
fortunes without any knowledge of the nature of wealth, and 
that this knowledge is in itself a purely speculative and useless 
inquiiy. This is But saying that we know perfectly well how 
to live and breathe, without any knowledge of anatomy and 
physiology, and that these sciences are therefore superfluous. 
Such a proposition would not be tenable; but what should we 
say if it were maintained, and too, by a class of doctors, who, 
whilst decrying the science of medicine, should themselves 
subject you to a treatment founded upon antiquated empiri- 
cism and the most absurd prejudices; who rejecting all regular 
and systematic instruction, in spite of your remonstrances, 
should perform upon your own body the most bloody experi- 
ments; whose orders should be enforced with the weight and 
solemnity of laws, and, finally, carried into execution by a 
host of clerks and soldiers? 

In support of antiquated errors it has, also, been said, "that 



INTRODUCTION'. xlvii 

there surely must be some foundations for opinions, so gene- 
rally embraced by all mankind; and that we ourselves ought 
rather to call in question the observations and reasonings 
which overturn what has been hitherto so uniformly maintain- 
ed and acquiesced in by so many individuals, distinguished 
alike by their wisdom and benevolence." Such reasoning, 
it must be acknowledged, should make a profound impression 
on our minds, and even east some doubts on the most incontro- 
vertible positions, had we not alternately seen the falsest hy- 
potheses, now universally recognised as such, every where re- 
ceived and taught during a long succession of ages. It is yet 
but a very little time, since the rudest, as well as the most re- 
fined nations, and all mankind, from the unlettered peasant to 
the enlightened philosopher, believed in the existence of but 
four material elements. No human being had even dreamt of 
disputing a doctrine, which is nevertheless false; insomuch, 
that a tyro in natural philosophy, who should at present con- 
sider earth, air, fire, and water as distinct elements, would be 
disgraced.* How many other opinions, as universally pre- 
vailing and as much respected, will in like manner pass away! 
There is something epidemical in the opinions of mankind; 
they are subject to be attacked by moral maladies which in- 
fect the whole species. Periods at length arrive when, like 
the plague, the disease wears itself out and loses all its malig- 
nity; but it still has required time. The entrails of the victims 
were consulted at Rome three hundred years after Cicero had 
remarked, that the two augurs could no longer examine them 
without laughter. 

The contemplation of this successive fluctuation of opinions 
must not, however, inspire us with a belief that nothing is to 
be admitted as certain, and thus induce us to yield up fo uni- 
versal scepticism. Facts repeatedly observed by individuals 
in a situation to examine them under all their aspects, when 
once well established and accurately described, can no longer 
be considered as mere opinions, but must be received as posi- 
tive truths. When it was demonstrated, that all bodies are 
expanded by heat, this truth could no longer be called in ques- 
tion. Moral and political science present truths equally indis- 
putable, but of more difficult solution. In these sciences, every 
individual considers himself not only as being entitled to make 
discoveries, but as being also authorized to pronounce upon 
the discoveries of others; yet how few persons acquire compe- 

* Every branch of knov/ledg-e, even the most important, is but of very- 
recent origin. The celebrated writer on agriculture, Arthur Young, after 
having bestowed uncommon pains in the collection of all the observations 
that had been made in relation to soils, one of the most important parts of 
this science, and which teaches us by what succession of crops the earth 
may be at all times and with the greatest success cultivated, remarked, that 
he could not find that any thing had been written on this subject prior 
to the year 176S. Other arts, not less essential to the h.appiness and pros- 
perity of society, are still also in their infancy. 



Xlviii INTRODUCTION. 

tent knowledge, and views sufficiently enlarged, to become 
assured, that the subject upon which they thus venture to pro- 
nounce judgment, is thoroughly understood by them in all its 
bearings. In society, one is astonished to find the most ab- 
struse questions as quickly decided as if every circumstance, 
which, in any way, could and ought to affect the decision, 
were known. What would be said of a party passing rapidly 
in front of a large castle, that should undertake to give an ac- 
count of every thing that is going on within? 

Certain individuals, whoseminds have never caught a glimpse 
of a more improved state of societ}', boldly affirm that it could 
not exist; they acquiesce in established evils, and console them- 
selves for their existence by remarking, that they could not 
possibly be otherwise; in this respect reminding us of that em- 
peror of Japan who thought he would have suffocated with 
laughter, upon being told that the Dutch had no king. The 
Iroquois were at a loss to conceive how wars could be carried 
on with success, if prisoners were net to be burnt. 

Although, to all appearance, many European nations may 
be in a very flourishing condition, and some of them annually 
expend from one to two hundred millions of dollars solely for 
the support of government, it must not thence be inferred that 
their situation leaves nothing to be desired. A rich Sybarite, 
residing according to his inclination either at his castle in the 
country or in his palace in the metropolis, in both, at an enor- 
mous expense, partaking of every luxury that sensuality can 
devise, transporting himself with the utmost rapidity and com- 
fort in whatever direction new pleasures invite him, engross- 
ing the industry and talents of a multitude of retainers and 
servants, and killing a dozen horses to gratify a whim, may be 
of opinion that things go on sufficiently well, and that the 
science of Political Economy is not susceptible of any further 
improvement. But in the countries said to be in a flourishing 
condition, how many human beings can be enumerated, in a 
situation to partake of such enjoyments? One out of a hundred 
thousand at most; and out of a thousand, perhaps not one who 
may be permitted to enjoy what is called a comfortable inde- 
pendence. The haggardness of poverty is every where seen 
contrasted with the sleekness of wealth, the extorted labour of 
some compensating for the idleness of others, wretched hovels 
by the side of stately colonades, the rags of indigence blended 
with the ensigns of opulence; in a word, the most useless pro- 
fusion in the midst of the most urgent wants. 

Persons who, under a vicious order of things, have obtained 
a competent share of social enjoyments, are never in want of 
arguments to justify to the eye of reason such a state of socie- 
ty; for what may not admit of apology when exhibited in but 
one point of view? If the same individuals were to-morrow 
required to castanewthe lots assigning them aplace in society., 
they would find many things to object to. 

Accordingly, opinions in Political Economy are not only 



INTRODUCTION. xllX 

maintained by vanity, the mostuniversalof human infirmities, 
but by self interest, unquestionably not less so; and which, 
without our knowledge, and in spite of ourselves, exercises a 
powerful influence over our mode of thinking. Hence, the 
sharp and sour intolerance by which truth has been so often 
alarmed and obliged to retire; or which, when she is armed 
with courage, encompasses her with disgrace, and sometimes 
with persecution. Knowledge is at present so very generally 
diffused, that a philosopher may assert, without the risk of 
contradiction, that the laws of nature are the same in a world 
and in an atom; but a statesman who should venture to affirm, 
that there is a perfect analogy between the finances of a nation 
and those of an individual, and that the same principles of 
economy should regulate the management of the aflfairs of both, 
would have to encounter the clamours of various classes of so- 
ciety, and to refute ten or a dozen different systems. 

Nor is this all: writers are found who possess the lamentable 
facility of composing articles for journals, pamphlets, and even 
whole volumes upon subjects which, according to their own 
confession, they do not understand. And what is the conse- 
quence? The science is involved in the clouds of their own 
minds, and that is rendered obscure which was becoming clear. 
Such is the indifference of the public, that they rather prefer 
trusting to assertions, than be at the trouble of investigating 
them. Sometimes, moreover, a display of figures and calcu- 
lations imposes upon them; as if numerical calculations alone 
could prove any thing, and as if any rule could be laid down, 
from which an inference could be drawn, without the aid of 
sound reasoning. 

These are among the causes which have retarded the pro- 
gress of Political Economy. 

Every thing, however, announces that this beautiful, and 
above all, useful science is spreading itself with increasing ra- 
pidity. Since it has been perceived, that it does not rest upon 
hypothesis, but is founded upon observation and experience, 
its importance has been felt. It is now taught wherever know- 
ledge is cherished. In the universities of Germany, of Scot- 
land, of Spain, of Italy, and of the North of Europe, profes- 
sorships of Political Economy are already established. But 
hereafter this science will be taught in them, with all the ad- 
vantages of a regular and systematic study. Whilst the uni- 
versity of Oxford proceeds in her old and beaten track, within 
a few years that of Cambridge has established a chair for the 
purpose of imparting instruction in this new science. Courses 
of lectures are delivered in Geneva and various other places; 
and the merchants of Barcelona have, at their own expense, 
founded a professorship on Political Economy. It is now con- 
sidered as forming an essential part of the education of princes; 
and those who are worthy of that high distinction blush at be- 
ing ignorant of its principles. The emperor of Russia has de- 
sired his brothers, the grand dukes Nicholas and Michael, to 
7 



1 INTUODUCTIOfr, 



K 



ursue a course of study on this subject under the direction of 
I. Storr.h. Finally, the government of France has done itself 
lasting honour by establishing iii this kingdom, under the sanc- 
tion of public authority, the first professorship of Political 
Economy. 

When the youths who are now students, shall be scattered 
through all the various classes of society, and elevated to the 
principal posts under government, public affairs will be con- 
ducted in a much better manner than they hitherto have been. 
Princes as well as people, becoming more enlightened as to 
their true interests, will perceive that these interests are not 
at variance with each other; which on the one side will na- 
turally induce less oppression and on the other beget more 
confidence. 

At present, authors who venture to write upon politics, his- 
tory, and. a fortiori upon finance, commerce and the arts, with- 
out any previous knowledge of the principles of Political 
Economy, only produce works of temporary success, that do 
not succeed in fixing public attention. 

But what has chiefly contributed to the advancement of Po- 
litical Economy, is the grave posture of affairs in the civilized 
world during the last thirty years. The expenses of govern- 
ments have risen to a scandalous height; the appeals which 
they have been obliged to make to their subjects in order to 
relieve their exigencies, have disclosed to them their own im- 
portance. A concurrence of public sentiment, or at least the 
semblance of it, has been almost every where called for, if not 
brought about. The enormous contributions drawn from the 
people, under pretexts more or less specious, not even having 
been found sufficient, recourse has been had to loans; to obtain 
credit it became necessary for governments to disclose their 
wants as well as their resources; and the publicity of the na- 
tional accounts, the necessity of vindicating to the world the 
acts of the administration, have in the science of politics pro- 
duced a moral revolution, whose course can no longer be im- 
peded. 

The disorders and calamities incident to the same period, 
have also supplied us with important experiments. The abuse 
of paper money, commercial and other restrictions, have made 
us feel the ultimate effects of almost all excesses. And the 
sudden overthrow of the most imposing bulwarks of society, 
the gigantic invasions, the destruction of old governments and 
the creation of new, the formation of rising empires in another 
hemisphere, the colonies that have become independent, the 
general impulse given to the human mind, so favourable to 
the development of all its faculties, the great expectations and 
the great mistakes, have undoubtedly very much enlarged our 
views; at first operating upon men of calm observation and re- 
flection, and subsequently upon all mankind. 

It is to the facility of tracing the links in the chain of causes 
and eflects that we must ascribe the great improvement in the 



INTRODUCTION, M 

kindred branches of moral and political science; and hence it Is, 
when once the manner in which political and economical facts 
bear upon each other is well understood, that we are enabled to 
decide what course of conduct will be most advantageous in 
any given situation. Thus, for example, to get rid of mendici- 
ty, that will not be done which only tends to multiply paupers; 
and, in order to procure abundance, the only measures calcu- 
lated to prevent it will not be adopted. The certain road to 
national prosperity and happiness being known, it can and 
will be chosen. 

For a long time it was thought, that the science of Political 
Economy could only possibly be useful to the very limited 
number of persons engaged in the administration of public af- 
fairs. It is undoubtedly of importance that men in public life 
should be more enlightened than others; in private life, the 
mistakes of individuals can never ruin but a small number of 
families, whilst those of princes and ministers spread desolation 
over a whole country. But, is it possible for princes and 
ministers to be enlightened, when private individuals are not 
so? This is a question that merits consideration. It is in the mid- 
dling classes of society, equally secure from the intoxication 
of power and the compulsory labour of indigence, in which 
are found moderate fortunes, leisure united with habits of in- 
dustry, the free intercourse of friendship, a taste for literature 
and the ability to travel, that knowledge originates, and is dis- 
seminated amongst the highest and lowest orders of the peo- 
ple. For these latter classes, not having the leisure necessary 
for meditation, only adopt truths when presented to them in 
the form of axioms, requiring no further demonstration. 

And although a monarch and his principal ministers should 
be well acquainted with the principles upon which national 
prosperity is founded, of what advantage would this know- 
ledge be to them, if throughout all the diflferent departments 
of administration, their measures were not supported by men 
capable of comprehending and enforcing them? The prosperity 
of a city or province is sometimes dependent upon the official 
acts of a single individual; and the head of a subordinate de- 
partment of government, by provoking an important decision, 
often exercises an influence even superior to that of the legis- 
lator himself. In countries blessed with a representative form 
of government, each citizen is under a much greater obligation 
to make himself acquainted with the principles of Political 
Economy; for there every man is called upon to deliberate 
upon public affairs. 

Finally, in supposing that every person in any way connect- 
ed with government, from the highest to the lowest, could be 
well acquainted with these principles, without the nation at 
large being so, which is wholly improbable, what resistance 
would not the execution of their wisest plans experience? What 
obstacles would they not encounter in the prejudices of those 
even, who should most favour their measures? 



Hi INTRODUCTION. 

A nation, in order to enjoy the advantages of a ^ood system 
of Economy, must not only possess statesmen capable of adopt- 
ing the best plans, but the population must be in a situation to 
admit of their application.* 

It is also the way of avoiding doubts and perpetual changes 
of principles, which prevents our profiting even from whatever 
may be good in a bad system. A steady and consistent policy 
is an essential element of national prosperity; thus England 
has become more opulent and powerful than would seem to 
comport with her territorial extent, by an uniform and stead- 
fast adherence to a system, even in many respects objectiona- 
ble to her, of monopolizing the maritime commerce of other 
nations. But to follow for any length of time the same route, 
it is necessary to be able to choose one not altogether bad; un- 
foreseen and insurmountable difficulties would otherwise have 
to be encountered, which would oblige us to change our course, 
without even the reproach of versatility. 

It is, perhaps, to this cause that we must attribute the evils 
which, for two centuries, have tormented France; a period 
during which she was within reach of the high state of pros- 
perity she was invited to by the fertility of her soil, her geo- 
graphical position, and the genius of her inhabitants. With 
no fixed opinions in relation to the causes of public prosperi- 
ty, the nation, like a ship without chart or compass, was dri- 
ven about by the caprice of the winds and the folly of the 
pilot, alike ignorant of the place of her departure or destina- 
tion.! A consistent policy in France would have extended 
its influence over many successive administrations; and the 
vessel of the state would at least not have been in danger of 
being wrecked, or exposed to the awkward manoeuvres by 
which she has so much suffered. 

Versatility is attended with such ruinous consequences, that 
it is impossible to pas&even from a bad to a good system with- 
out serious inconvenience. The exclusive and restrictive sys- 

* I here suppose the higher orders of society to be actuated by a sincere 
desire to promote the piibhc good. Vv'hen this feeling*, however, does 
not exist, when the g-overnment is faithless and corrupt, it is of still greater 
importance that the people should become acquainted with the real state 
of things, and comprehend their true interests. Otherwise, they suffer 
without knowing to what causes their distresses ought to be attributed; or, 
indeed, by attributing- tliem to erroneous causes, the A'iews of the public 
are distracted, their efforts disiuiited, and iridividuals, tluis deprived of ge- 
neral support, fail in resolution, and despotism is strengtliened; or, what is 
still worse, where the people are so badly g-o^erned as to become despe- 
rate, they listen to pernicious counsels, and exchange a vicious order of 
things for one still worse. 

f In how many instances have not great pains been taken and considera- 
ble capital expended to increase the evils mankind have been desirous of 
shunning. How many regulations are just so far carried into execution as 
to produce all the injury restrictions possibly can effect, and, at the same 
time, just as far violated as to retain all the inconveniences arising from 
their infringement? 



INTRODUCTION. 11 li 

tern is without doubt vastly injurious to the development of 
industry and to the progress of national wealth; nevertheless, the 
establishments which this policy has created could not be sud- 
denly suppressed, without causing great distress.* A more 
favourable state of things can only be brought about, without 
any inconvenience, by the gradual adoption of measures in- 
troduced with infinite skill and care. A traveller whose limbs 
have been frozen in traversing the arctic regions, can onlj?^ be 
preserved from the dangers of a too sudden cure and restored 
to entire health, by the most cautious and imperceptible reme- 
dies. 

The soundest principles are not at all times applicable. The 
essential object is to know them, and then such as are applica- 
ble or desirable can be adopted. There can be no doubt that 
a new community, which in every instance should consult 
them, would rapidly reach the highest pitch of opulence; but 
every nation may, nevertheless, in many respects violate them 
and yet attain a satisfactory state of prosperity. The power- 
ful action of the vital principle causes the human body to grow 
and thrive in spite of the accidents and excesses of youtn, or 
of the wounds which have been inflicted on it. Absolute per- 
fection, beyond which all is evil and produces only evil, is no 
where found; evil is every where mixed with good. When 
the former preponderates, society declines; when the latter, it 
advances with more or less rapidity in the road of prosperity. 
Nothing, therefore, ought to discourage our efforts towards 
the acquisition and dissemination of sound principles. The 
least step taken towards the attainment of this knowledge is 
immediately productive of some good, and ultimately Will 
yield the happiest fruits. 

If, for the interest of the state, it is important that individu- 
als should know what are the true principles of Political Eco- 
nomy, who will venture to maintain that the same knowledge 
will be useless to them in the management of their own pri- 
vate concerns? That money is readily earned without any 
knowledge of the nature or origin of wealth, I admit. For 
that purpose, a very simple calculation, within the reach of 
the rudest peasant, is all that is necessary: such an article 
will, including every exjjense, cost me so much; I shall sell 
it for so much, and, there/ore, shall gain so Tnuch. Never- 
theless, accurate ideas respecting the nature and growth of 
wealth, unquestionably afford us many advantages in forming 
a sound judgment of enterprises in which we are interested, 
either as principals or as parties. They enable us to foresee 
what these enterprises will require, and what will be their re- 
sults; to devise the means of their success and to establish our 
exclusive claims to them ; to select the most secure investments, 

* This arises from our not being able, without serious losses, to displace 
the capital and talents, winch, owing to an erroneous system, !)a\e received 
a faulty direction. 



JlV INTRODUCTION. 

from anticipating the effects of loans and other public mea- 
sures; to cultivate the earth to advantage, from accurately 
adjusting actual advances with probable returns; to become 
acquainted with the general wants of society, and thus be ena- 
bled to make choice of a profession; and to discern the symp- 
toms of national prosperity or decline. 

The opinion that the study of the science of Political Econo- 
my is calculated to be useful to statesmen only, fallacious as it 
is, has been attended with other disadvantages. Almost all the 
authors on this subject, until the time of Dr. Adam Smith, had 
imagined that their principal object was to enlighten the pub- 
lic authorities; and as they were far from agreeing among 
themselves, inasmuch as the facts and their connexion and con- 
sequences were but imperfectly known to them, and entirely 
overlooked by the multitude, it is by no means surprising that 
they should have been regarded as visionary dreamers m re- 
lation to the public good. Hence the contempt which men 
in power always affect towards every thing like first princi- 
ples. 

But since the rigorous method of philosophising, which in 
every other branch of knowledge leads to truth, has been ap- 
plied to the investigation of facts, and to the reasonings found- 
ed on them, and the science of Political Economy has been 
thus confined to a simple exposition of whatever takes place 
in relation to wealth, it no longer attempts to offer counsel to 
public authorities. Should they, however, be desirous of as- 
certaining the good or evil consequences likely to result from 
any favourite project, they may consult this science, exactly 
as they would consult Hydraulics upon the construction of a 

gjmp or sluice. All that can be required from Political 
conomy is to furnish governments with a correct representa- 
tion of the nature of things, and the general laws necessarily 
resulting from it. Perhaps, until such views be more gene- 
rally diffused, it may also be required, to point out to them 
some of the applications of its principles. Should these be de- 
spised or neglected, the governments themselves, as well as 
the people, will be the sufferers. The husbandman who sows 
tares can never expect to reap wheat. 

Certainly, if Political Economy discloses the sources of 
wealth, if it points out the means of rendering it more abun- 
dant, and teaches the art of drawing daily still more without 
ever exhausting it; if it demonstrates, that the population of a 
country may, at the same time, be more numerous and better 
supplied with the necessaries of life; if it satisfactorily proves 
that the interest of the rich and poor, and of different nations, 
are not opposed to each other, and that all rivalships are mere 
folly; and if from all these demonstrations it necessarily re- 
sults, that a multitude of evils supposed to be without remedy 
may not only be said to be curable, but even easy to cure, and 
that we need not suffer from them any longer than we ai*e 
willing so to do; it must be acknowledged that there are few 



INTRODUCTION. Iv 

studies of greater importance, or more deserving the attention 
of an elevated and benevolent mind. 

Time is a great teacher, and nothing can supph'^ its opera- 
tion. It alone can fully demonstrate the advantages to be de 
rived from a knowledge of Political Economy in the general 
principles of legislation and government. On the one hand, 
the custom which condemns so many men of sense, at the same 
time that they admit the principles of this science, to speak 
and act as if they were wholly ignorant of them,* and on the 
other, the resistance, which individual as well as general in- 
terests, imperfectly understood, oppose to many of these prin- 
ciples, exhibit nothing that ought either to surprise or alarm 
individuals animated with a desire of promoting the general 
welfare. The philosophy of Newton, which, during a period 
of fifty years, was unanimously rejected in France, is now 
taught in all its schools. Ultimately it will be perceived, that 
there are studies of still greater importance than this, if esti- 
mated by their influence on the happiness and prosperity of 
mankind. 

Still how unenlightened and ignorant are those very nations 
we term civilized! Survey entire provinces of proud Europe; 
interrogate a hundred, a thousand, or even ten thousand indi- 
viduals, and of this whole number, you will hardly find two, 
perhaps but one, imbued with the slightest tincture of the im- 
proved science of which the present age so much boasts. This 
general ignorance of recondite truths is by no means so re- 
markable, as an utter unacquaintance with the simplest rudi- 
ments of knowledge, applicable to the situation and circum- 
stances of every one. How rare also are the qualifications ne- 
cessary for one's own instruction, and how few persons are 
solely capable of observing what daily happens, and of ques^ 
tioning whatever they do not understand ! 

The highest branches of knowledge are still very far from 
having yielded to society all the advantages to be expected 
from them, and without which they would be merely curious 

• " They would wish, so to express myself, that I mig-ht be able to de- 
monstrate that my proofs are conclusive, and that they are not wrong- in 
submitting to them. The soundness of my reasoning- has produced a mo- 
mentary conviction; but they afterwards feel the habitual influence of their 
former opinions return with undiminished authority, although without a!iy 
adequate cause, as in the case of the apparent increase in the diameter of 
the moon at the horizon. They would wish to be freed by me from these 
troublesome relapses, of whose delusiveness they are sensible, but which 
nevertheless importune them. In a word, they are desirous, that I should be 
enabled to effect by reason what time alone can accomplish; which is impos- 
sible. Every cause has an effect peculiar to itself. Reason may convince, 
opinions carry us along, and illusions perplex us; but time alone, and the 
frequent repetition of the same acts, can produce that state of calmness and 
ease which we call habit. Hence it is, that all new opinions are such a length 
of time in spreading themselves. If an innovator has ever had immediate 
success, it is only from having discovered and promulgated opinions already 
floating in every mind." Destutt-Tract, Logique, chap. 8. 



Ivi INTRODUCTION. 

speculations. Perhaps their perfect application is reserved 
for the nineteenth century. In moral as well as in physical 
science, men of superior minds will appear, who, after having 
extended their theoretical views, will disclose methods of 
placing important truths within the reach of the humblest ca- 
pacities. In the ordinary occurrences of life, instead of then 
being guided by the false lights of a transcendental philoso 
phy,' mankind will be governed by the maxims of common 
sense. Opinions will not rest on gratuitous assumptions, but 
be the result of an accurate ooservation of the nature of things. 
Thus, habitually and naturally ascending to the source of all 
truth, we shall not suffer ourselves to be imposed upon by empty 
sounds, or submit to the guidance of erroneous impressions. 
Corruption, being thus deprived of the weapons of empiricism, 
will lose her principal strength, and be no longer able to ob- 
tain triumphs, calamitous to honest men and disastrous to 
nations. 



BOOK I. 

OF THE PRODUCTION OF WEALTH. 



CHAPTER I. 



OP WHAT IS TO BE UNDERSTOOD BY THE TERM, PRODUCTION. 

If we take the pains to inquire what that is, which mankind 
in a social state of existence denominate wealth, we shall find 
the term employed to designate an indefinite quantity of ob- 
jects bearing; inherent value, as of land, of metal, of coin, of 
grain, of stuffs, of commodities of every description. When 
they further extend its signification to landed securities, bills, 
notes of hand, and the like, it is evidently because they con- 
tain obligations to deliver things possessed of inherent value. 
In point of fact, wealth can only exist where there are things 
possessed of real and intrinsic value. 

Wealth is proportionate to the quantum of that value: great, 
when the aggregate of component value is great; small, when 
that aggregate is small. 

The value of a specific article is always vague and arbitrary, 
so long as it remains unacknowledged. Its owner is not a jot 
the richer, by setting a higher ratio upon it in his own esti- 
mation. But the moment that other persons are willing, for 
the purpose of obtaining it, to give in exchange a certain quan- 
tity of other articles, likewise bearing value, the one may then 
be said to be worth, or to be of equal value with, the other. 

The quantity of money, which is readily parted with to ob- 
tain a thing, is called its price. Current price, at a given time 
and place, is that price which the owner is sure of obtaining 
for a thing, if he is inclined to part with it.* 

The knowledge of the real nature of wealth, thus defined, of 
the difficulties that must be surmounted in its attainment, of 
the course and order of its distribution amongst the members 
of society, of the uses to which it may be applied, and, further, 

• The numerous and difficult points arising out of the confusion of positive 
and relative value ai-e discussed in different parts of this work: particularly 
in the leading- chapters of Book II. Not to perplex the attention of the 
reader, I confine myself here to so much, as is absolutely necessary to com- 
prehend the phenomenon of the production of wealth. 
8 



2 ON PRODUCTION. book i, 

of the consequences resulting respectively from these several 
circumstances, constitutes that branch of science now entitled 
Political Economy. 

The value that mankind attach to objects originates in the 
use it can make of them. Some afford sustenance; others serve 
for clothing; some defend them from the inclemencies of the 
season, as houses; others gratify their taste, or, at all events, 
their vanity, both of which are species of wants: of this class 
are all mere ornaments and decorations. It is universally true, 
that, where men attribute value to any thing, it is in considera- 
tion of its useful properties: what is good for .nothing they set 
no price upon,* To this inherent fitness or capability of cer- 
tain things to satisfy the various wants of mankind, I shall take 
leave to affix the name of utility. And I will go on to say, that, 
to create objects which have any kind of utility, is to create 
wealth; for the utility of things' is the ground-work of their 
value, and their value constitutes wealth. 

Objects, however, can not be created by human means; nor 
is the mass of matter, of which this globe consists, capable of 
increase or diminution. All that man can do is, to re-produce 
existing materials under another form, which may give them 
an utility they did not before possess, or merely enlarge one 
they may have before presented. So that, in fact, there is a 
creation, not of matter, but of utility; and this I call production 
of wealth. 

In this sense then, the word production must be understood 
in political economy, and throughout the whole course of the 
present work. Production is the creation, not of matter, but 
of utility. It is not to be estimated by the length, the bulk, 
or the weight of the product, but by the utility it presents. 

Although price is the measure of the value of things, and 
their value the measure of their utility, it would be absurd to 
draw the inference, that, by forcibly raising their price, their 
utility can be augmented. Exchangeable value, or price, is 
an index of the recognised utility of a thing, so long only as 
human dealings are exempt from every influence but that of the 
identical utility: in like manner as a barometer denotes the 
weight of the atmosphere, only while the mercury is submit- 
ted to thei exclusive action of atmospheric gravity. 

In fact, when one man sells any product to another, he sells 
him the utility vested in that product: the buyer buys it only 
for the sake of its utility, of the use he can make of it. If, by 

* It would be out of pkce here to examine, whether or no the value man- 
kind attach to a thing' be always proportionate to its actual utiUty. The 
accuracy of the estimate must depend upon the comparative judgment, in- 
telligence, habits, and prejudices of those who make it. True morality, 
and the clear perception of tlieir reul interests, lead mankind to the just ap- 
preciation of benefits. Political economy takes this appreciation as it finds 
it — as one of the data of its reasonings; leaving to the moralist and the prac- 
tical man, the several duties of enlightening and of guiding their fellow, 
creatures, as well in this, as in other particulars of human conduct. 



CHAP. I. ON PRODUCTION. 3 

any cause whatever, the buyer is obliged to pay more than 
the vahie to himself of that utility, he pays for value that has 
no existence, and consequently which he does not receive.* 

This is precisely the case, when authority grants to a par- 
ticular class of mei'chants the exclusive privilege of carrying on 
a certain branch of trade, the India trade for instance; the 
price of Indian imports is thereby raised, without any acces- 
sion to their utility or intrinsic value. This excess of price is 
nothing more or less than so much money transferred from the 
pockets of the consumers into those of the privileged traders, 
whereby the latter are enriched exactly as much as the former 
are unnecessarily impoverished. In like manner, when a go- 
vernment imposes on wine a tax, which raises to 15 sous the 
bottle what would otherwise be sold for 10 sous, what does it 
else, but transfer 5 sous per bottle from the hands of the pro- 
ducers or the consumers of wine to those of the tax-gatherer?t 
The particular commodity is here only the means resorted to 
for getting at the tax-payer with moi^e or less convenience; and 
its current value is composed of two ingredients, viz. 1. Its real 
value originating in its utility: 2. The value of the tax that 
the government thinks fit to exact, for permitting its manufac- 
ture, transport, or consumption. 

Wherefore, there is no actual production of wealth, without 
a creation or augmentation of utility. Let us see in what man- 
ner this utility is to be produced. 



CHAPTER 11. 

OP THE DIFFERENT KINDS OF INDUSTRY AND THE MODE IN 
WHICH THEY CONCUR IN PRODUCTION. 

Some items of human consumption are the spontaneous gifts 
of nature, and require no exertion of man for their production; 
as air, water, and light, under certain circumstances. These 
are destitute of exchangeable value: because the want of them 
is never felt, others being equally provided with them as our- 
selves. Being neither procurable by production, nor destructi- 
ble by consumption, they come not within the province of po- 
litical economy. 

But there are abundance of others equally indispensable to 
our existence and to our happiness, which man would never 

* This position will hereafter be further illustrated. For the present it 
is enough to know, that, whatever be the state of society, current prices ap- 
proximate to the real value of things, in proportion to the liberty of produc- 
tion and of mutual dealing. 

f It will be shown in Book III. of this work, what proportion of the tax 
is paid by the pi-oducer, and what by the consumer. 



4 ON PRODUCTION. book i. 

enjoy at all, did not his industry awaken, assist, or complete 
the operations of nature. Such are most of the articles which 
serve for his food, raiment and lodging. 

When that industry is limited to the bare collection of natu- 
ral products, it is called agricultural industry, or simply 
agriculture. 

When it is employed in severing, compounding, or fashion- 
ing the products of nature, so as to fit them to the satisfaction 
of our various wants, it is called manufacturing industry. * 

When it is employed in placing within our reach objects of 
want, which would otherwise be beyond reach, it is called 
commercial industry , or simply commerce. 

It is solely by means of industry that mankind can be fur- 
nished, in any degree of abundance, with actual necessaries, 
and with that variety of other objects, the use of which, though 
not altogether indispensable, yet marks the distinction between 
a civilized community, and a tribe of savages. Nature, left 
entirely to itself, would provide a very scanty subsistence to a 
small number of human beings. Fertile but desert tracts have 
been found inadequate to the bare nourishment of a few 
wretches, cast upon them by the chances of shipwreck: while 
the presence of industry often exhibits the spectacle of a dense 
population plentifully supplied upon the most ungrateful soil. 

The term products is applied to things that industry fur- 
nishes to mankind. 

A particular product is rarely the fruit of one branch of in- 
dustry exclusively. A table is a joint product of agricultural 
industry, which has felled the tree whereof it is made, and of 
manufacturing industry, which has given it form. Europe is 
indebted for its coffee to the agricultural industry, which has 
planted, and cultivated the bean in Arabia or elsewhere, and 
to the commercial industry, which hands it over to the con- 
sumer. 

These three branches of industry, which may at pleasure be 
again infinitely subdivided, are uniform in their mode of con- 
tributing to the act of production. They all either confer an 
utility on a substance that possessed none before, or increase 
one which it already possessed. The husbandman who sows 
a grain of wheat that yields twenty-fold, does not gain this 
product from nothing: he avails himself of a powerful agent; 
that is to say, of Nature, and merely directs an operation, 
whereby different substances previously scattered throughout 
the elements of earth, air, and water, are converted into the 
form of grains of wheat. 

Gall-nuts, sulphat of iron, and gum-arabic, are substances 
existing separately in nature. The joint industry of the mer- 

• since matter can only be modified, compounded, or separated, by 
means either mechanical, or chemical, all branches of manufacturing' indus- 
try may be subdivided into the mechanical and the chemical arts, according 
to the predominance of the one or the other in their several processes. 



CHAP. II. ON PRODUCTION. 5 

chant and manufacturer brings them together, and from their 
compound derives the black liquid, applied to the transmission 
of useful science. This joint operation of the merchant and 
manufacturer is analogous to that of the husbandman, who 
chooses his object and effects its attainment by precisely the 
same kind of means as the other two. 

No human being has the faculty of originally creating mat- 
ter, which is more than nature itself can do. But any one may 
avail himself of the agents offered him by nature, to invest 
matter with utility. In fact, industry is nothing more or less 
than the human employment of natural agents; the most per- 
fect product of labour, the one that derives nearly its whole 
value from its workmanship, is probably the result of the ac- 
tion of steel, a natural product, upon some substance or other, 
likewise a natural product.* 

Through ignorance of this principle, the economists of the 
18th century, though many enlightened writers were to be 
reckoned amongst them, were betrayed into the most serious 
errors. They allowed no industry to be productive, but that 
which procured the raw materials; as the industry of the hus- 
bandman, the fisherman, and the miner; not adverting to the 
distinction, that wealth consists, not in matter, but in the va- 
lue of matter; because matter without value is no item of 
wealth; otherwise water, flint-stones, and dust of the roads, 
would be wealth. Wherefore, if the value of matter consti- 
tutes wealth, wealth is to be created by the annexation of va- 
lue. Practically, the man who has in his warehouse a quintal 
of wool worked up into fine cloths, is richer than one who has 
the same quantity of wool in packs. 

To this position the economists replied, that the additional 
value communicated to a product by manufacture, was no more 
than equivalent to the value consumed by the manufacturer 
during the process; for, said they, the competition of manufac- 
tures prevents their ever raising the price beyond the bare 
amount of their own expenditure and consumption; wherefore 
their labour adds nothing to the total wealth of the community, 
because their wants on the one side destroy as much, as their 
industry produces on the other, t 

* Mas;rottl in his Opuscula, by way of exemplifying the prodigious ad- 
dition of value given to an object by industry, adduces the spiral springs 
that check the balance-wheels of watches. A pound weight of pig-iron costs 
the opei'ative manufacturer about five sous. This is worked up into steel, 
of wliich is made the little spring* that moves the balance-wheel of a watch. 
Each of these springs weighs but the tenth part of a grain; and, when com- 
pleted, may be sold as high as eighteen fr. : so that out of a pound of iron, 
allowing something for loss of metal, 80,000 of these springs may be made, 
and a substance of five sous value be wrought into a value of 1,440, OOO/r. 

-(• Mercier de la Riviere, in his work entitled, " Ordre Naturel des Socie- 
tSs PoUtiques" torn. ii. p. 255,while labouring to prove, that manufacturing 
labour is barren and unproductive, makes use of an argument,whichlthink 
it may be of some service to refute, because it has been often repeated in 
different shapes, and some of them specious enough. He says, "that if the 



6 ON PRODUCTION. book i. 

But it should have been previously demonstrated by those 
who made use of this argument, that the value, consumed by 
mechanics and artizans, must of necessity barely equal the va- 
lue produced by them, which is not the fact; for it is unques- 
tionable, that more savings are made, and more capital accu- 
mulated from the profits of trade and manufacture, than from 
those of agriculture.(l) 

Besides, even admitting that the profits of manufacturing in- 
dustry are consumed in the satisfaction of the necessary wants 
of the manufacturers and their families, that circumstance does 
not prevent them being positive acquisitions of wealth. For 
unless they were so, they could not satisfy their wants: the 
profi.ts of the land-owner and agriculturist are allowed to be 
items of positive wealth; yet they are equally consumed in the 
maintenance of those classes. 

Commercial, in like manner as manufacturing industry, con- 
curs in production, by augmenting the value of a product by 
its transport from one place to another. A quintal of Brazil 
cotton has acquired greater utility and therefore larger value, 
by the time it reaches a warehouse in Europe, than it possess- 
ed in one at Pernambuco. The transport is a modification 
that the trader gives to the commodity, whereby he adapts to 
our use what was not before available; which modification is 
equally useful, complex, and uncertain in the result, as any it 
derives from the other two branches of industry. He avails 
himself of the natural properties of the timber and the metals 
used in the construction of his ships, of the hemp whereof his 
rigging is composed, of the wind that fills his sails, of all the 
natural agents brought to concur in his purpose, with precisely 

unreal pi-oducts of industry are considered as realities, it is a necessary in- 
ference, that an useless multiplication of workmanship is a multiplication 
of wealth." But, because human labour is productive of value, when it has 
an useful result, it by no means follows, that it is productive of value, when 
its result is either useless or injurious. All labour is not productive,- but 
such only as adds a real value to any substance or thing. And the futility 
of this arg-ument of the Economists is put beyond all question by the cir- 
cumstance, that it may be equally employed against their own system and 
that of their opponents. I'hey may be told, "You admit the industry of 
the cultivator to be productive; therefore he has only to plough and sow 
his fields ten times a-year to increase his productiveness ten-fold," which 
is absurd. 



(1) [Our author, in here asserting, "that more savings are made, and 
more capital accumulated from the profits of trade and manufactures, than 
from those of agriculture," has fallen into an error, which it is proper to 
notice. In the absence of prohibitions and restraints, the profits of agricul- 
ture, manufactures and commerce, will all be on an equality, or always 
nearly approaching towards it; for any material difference will cause a di- 
version of capital and industry to the more productive channel, and by that 
means restore the equilibrium. In overthrowing the hypothesis of the Eco- 
nomists, the author has inadvertently, for a moment, lost sight of his own 
general principles which so clearly establish the equality of profits in all the 
diflferent branches of industry.] Amehican Editor, 



CHAP. II. 



ON PRODUCTION. 



the same view and the same result, and in the same manner 
too, as the agriculturist avails himself of the earth, the rain, 
and the atmosphere.* 

Thus, when Raynal says of commerce, as contrasted with 
agriculture and the arts, that " it produces nothing of itself," 
he shows himself to have had no just conception of the pheno- 
menon of production. In this instance Raynal has fallen into 
the same error with regard to commerce, as the economists 
made respecting both commerce and manufacture. They pro- 
nounced agriculture to be the sole channel of production; Ray- 
nal refers production to the two channels of agriculture and 
manufacture: his position is neai'er the truth than the other, 
but still is erroneous. 

Condillac also is confused in his endeavour to explain the 
. mode in which commerce produces. He pretends that, be- 
cause all commodities cost to the seller less than to the buyer, 
they derive an increase of value from the mere act of transfer 
from one hand to another. But this is not so: for, since a 
sale is nothing else but an act of barter, in which one kind of 
goods, silver for example, is received in lieu of another kind 
of goods, the loss which either of the parties dealing should 
sustain on one article would be equivalent to the profit he 
would make on the other, and there would be to the commu- 
nity no production of value whatsoever.! When Spanish wine 

* Genovesi, who lectured on Political Economy at Naples, defines com- 
merce to be " the exchange of superfluities for necessaries." He gives as 
his reason, that in every transaction of exchange, the article received ap- 
pears to each of the contracting parties more necessary than that given. — 
This is a fai'-fetched notion, which I think myself called on to notice, be- 
cause it has obtained considerable currency. It would be difficult to prove, 
that a poor labourer, who goes to the aleliouse on a Sunday, exchanges 
tliere his superfluity for a necessary. In all fairtraflBc, there occurs a mu- 
tual exchange of two things, which are worth one tlie other, at the time 
and place of exchange. Commercial production, that is to saj^, the value 
added by commerce to the things exchanged, is not operated by the act of 
exchange, but by the commercial operations that precede it. 

The Count de Verri is the only writer within my knowledge, who has ex- 
plained the true principle and ground-work of commerce. In the year 
1771 he thus expresses himself: " Commerce is in fact notinng more than 
the transport of goods from one place to another." Mediiazioni sulla eco- 
nomiapolitica, §4. The celebrated Adam Smith himself appears to have 
had no very clear idea of commercial production. He merely discards the 
opinion, that there is any production of value in the act of exchange. 

■j- This circumstance had escaped the attention of Sismondi, or he would 
not have said, " The trader places himself between the producer and the 
consumer, to benefit them botli at once, making his charge for that benefit 
upon both." CNouveaux Prindpes d' Economie Pol. Liv. ii. ch. 8.) He 
would make it appear as if the trader subsisted wholly upon the values 
produced by the agriculturist and the manufacturer; whereas he is main- 
tained by the real value he himself communicates to commodities by giving 
tliem an additional modification, an useful property. It is this veuy notion 
that stirs up the popular indignation against the dealers in grain. 

L. Say, of Nantes, has fallen into the same mistake f Principales Causes 
de la Bichesse, &c. p. 110,) By way of demonstrating the value conferred 



8 ON PRODUCTION. book i. 

is bought at Paris, equal value is really given for equal value: 
the silver paid, and the wine received, are worth one the 
other; but the wine had not the same value before its export 
from Alicant: its value has really increased in the hands of 
the trader, by the circumstance of transport, and not by the 
circumstance, or at the moment, of exchanaje. The seller does 
. not play the rogue, nor the buyer the fool; and Condillac has 
no grounds for his position, that " if men always exchanged 
equal value for equal value, there would be no profit to be 
made by the traders."* 

In some particular cases the two other branches of industry 
produce in a manner analagous to commerce, viz. by giving a 
value to things to which they actually communicate no new 
quality, but that of approximation to the consumer. Of this 
description is the industry of miners. The coal or metal may 
exist in the earth, in a perfect state, but unpossessed of value. 
The miner extracts them thence, and this operation gives them 
a value, by fitting them for the use of mankind. So also of 
the herring fishery. Whether in or out of the sea the fish is 
the same; out, under the latter circumstances, it has acquired 
an utility, a value, it did not before possess. t 

Examples might be infinitely multiplied, and would all bear 
as close an affinity, as those natural objects, which the natural- 
ist classifies only to facilitate their description. 

This fundamental error of the Economists, in which I have 
shown that their adversaries in some measure participated, led 
them to the strangest conclusions. According to their theory, 
the traders and manufacturers, being unable to add an iota to 

by commerce to be unreal, he alleges it to be absorbed by the charges of 
transport. By this incidental process of reasoning, the economists concluded 
manufacture to be unproductive: not perceiving, that in these very charges 
consists the revenue of the commercial and manufacturing producers? and 
that it is in this way, that the values raised by production at large are distri- 
buted amongst the several producers. 

* See his work entitled " Le Commerce et le Gouvernment consid^r^s re- 
lativement I'un a I' autre." Ire. partie, ch. 6. 

•j- We may consider as agents of the same class of industry, the cultivator 
of the land, the breeder of cattle, the woodcutter, the fisherman that takes 
fish he has been at no pains in breeding, and the miner who, from the bowels 
of the earth, extracts metal, stone, or combustibles, that nature has placed 
there in a perfect state; and, to avoid multiplicity of denominations, the 
whole of these occupations may be called by the name of agricultural indus- 
try, because the superficial cultivation of the earth, is the chief and most 
important of all. Tei-ms are of httle consequence, when the ideas are clear 
and definite. The wine grower, who himself expresses the juice of his 
grapes, performs a mechanical operation, that partakes more of manufacture 
than of agriculture. But it matters little whether he be classed as a manu- 
facturer or agriculturist; provided that it be clearly comprehended in what 
manner his industry adds to the value of the product. If we wish to give se- 
parate consideration to every possible manner of giving value to things, in- 
dustry may be infinitely subdivided. If it be the object to generahze to the 
utmost, it may be treated as one and the same; for every branch of it will re- 
solve itself into this: the employment of natural substances and agents in the 
adaptation of products to human consumption. 



CHAP. 11. ON PRODUCTION. 9 

the general stock of wealth, live entirely at the expense of the 
sole producers, that is to say, the proprietors and cultivators 
of the land. Whatever new value they may communicate to 
things, they at the same time consume an equivalent product, 
furnished by the real producers: manufacturing and commer- 
cial nations, therefore, subsist wholly upon the wages they re- 
ceive from their agricultural customers; in proof of which po- 
sition, they alleged that Colbert ruined France by his protec- 
tion of manufactures, &c.* 

The truth is, that, in whatever class of industry a person is 
engaged, he subsists upon the profit he derives from the addi- 
tional value, or portion of value, no matter in what ratio, 
which his agency attaches to the product he is at work upon. 
The total value of products serves in this way to pay the pro- 
fits of those occupied in production. The wants of mankind 
are supplied and satisfied out of the ^ro*^ values produced and 
created, and not out of the net values only. 

A nation, or a class of the nation, engaged in manufacturing 
or commercial industry, is not a whit more nor less in the 
pay of another, than one employed in agriculture. The value 
created by one branch is of the same nature as that created by 
the others. Two equal values are worth one the other, al- 
though perhaps the fruit of different branches of industry: and 
when Poland barters its staple product, wheat, for the staple 
commodity of Holland, East and West India produce, Holland 
is no more in the pay or service of Poland, than Poland is of 
Holland. 

Nay, Poland herself, which exports at the rate of ten mil- 
lions of wheat annually, and therefore, according to the Econo- 
mists, takes the sure road to national wealth, is, notwithstand- 
ing, poor and depopulated: and why? — Because she confines 
her industry to agriculture, though she might be at the same 
time a commercial and manufacturing state. Instead of keep- 
ing Holland in her pay, she may Vi^ith more propriety be said 
to receive wages from the latter, for the raising of ten millions 
of wheat per annum. Nor is she a jot less dependent than 
the nations that buy wheat of her: for she has just as much de- 
sire to sell to them, as they have to buy of her.t" 

Moreover, it is not true that Colbert ruined France. On 
the contrary, the fact is that France, under Colbert's adminis- 
tration, emerged from the distress that two regencies and a 
weak reign had involved her in. She was, indeed, afterwards 
ruined again: but for this second calamity, she may thank the 
pageantry and the wars of Louis XIV. Nay, the very prodi- 
gality of that prince is an undeniable evidence of the vast re- 

* See the numberless writings of that sect. 

■J- We shall find in the sequel, that, if any one nation can be said to be in 
the service of another, it is tliat, wliich is tlie most dependent; and that the 
most dependent nations are, not those wliich have a scarcity of land, but 
tliose which have a scarcity of capital. 
9 



10 ON PRODUCTION. book i. 

sources that Colbert had placed at his disposal. It must, how- 
ever, be admitted that those resources would have been still 
more ample, if he had but given the same protection to agri- 
culture, as to the other branches of industry. 

Thus it is evident, that the means of enlarging and multi- 
plying wealth within the reach of every community are much 
less confined than the Economists imagined. A nation, by 
their account, was unable to produce annually any values be- 
yond the net annual produce of its lands; to which fund alone 
recourse could be had for the support, not onl3^of the proprie- 
tary and the idler, but likewise of the merchant, the manufac- 
turer, and the mechanic, as well as for the total consumption 
of the government. Whereas we have just seen, that the an- 
nual produce of a nation is composed, not of the mere net pro- 
duce of its agriculture, but of the gross produce of its agricul- 
ture, commerce, and manufacture united. For, in fact, is not 
the sum total, that is to say, the aggregate of the gross product 
raised by the nation, disposable for its consumption? Is value 
produced less an item oi wealth, because it must needs be con- 
sumed? And does not value itself originate in this very appli- 
cabilit)' to consumption. 

The English writer Stewart, who may be looked upon as 
the leading advocate of the exclusive system, the system found- 
ed on the maxim, that the wealth of one set of men is derived 
from the impoverishment of another, is himself no less mis- 
taken in asserting, that, " when once a stop is put to external 
commerce, the stock of internal wealth can not be augment- 
ed."* Wealth, it seems, can come only from abroad; but 
abroad, where does it come from? from abroad also. So that, 
in tracing it from abroad to abroad, we must necessarily, in 
the end, exhaust every source, till at last we are compelled to 
look for it beyond the limits of our own planet, which is ab- 
surd. 

ForbonnaiSjt too, builds his prohibitory system on this glar- 
ing fallacy; and, to speak freely, on this fallacy are founded 
the exclusive systems of all the short-sighted merchants, and 
all the governments of Europe and of the world. They all 
take it lor granted, that what one individual gains must needs 
be lost to another; that what is gained by one country is in- 
evitably lost to another: as if things were incapable of receiv- 
ing any increase of value; and as if the possessions of abun- 
dance of individuals and of communities could not be multi- 
plied, without the robbery of some body or other. If one 
man, or set of men, could only be enriched at others' expense, 
how could the whole number of individuals, of whom a state 
is composed, be richer at one period than at another, as they 
now confessedly are in France, England, Holland, and Ger- 
many, compared with what they were formerly? How is it, 

• Essay on Political Economy, b. ii. c. 26. 
f Elemens de Commerce. 



CHAP. III. ON PRODUCTION. 11 

that nations are in our days more opulent, and their wants bet- 
ter supplied in every respect, than they were in the seven- 
teenth century? Whence can they have derived that portion 
of their present wealth, which then had no existence? Is it 
from the mines of the new continent? They had already ad- 
vanced in wealth before the discovery of America. Besides, 
what is that which these mines have furnished? Metallic 
wealth or value. But all the other values which those na- 
tions now possess, beyond what they did in the middle ages, 
whence are they derived? Is it not clear, that these can be no 
other than created values? 

We must conclude, then, that wealth, which consists in the 
value that human industry, in aid and furtherance of natural 
agents, communicates to things, is susceptible of creation and 
destruction, of increase and diminution, within the limits of 
each nation, and independently of external agency, according 
to the method it adopts to bring about those effects. An im- 
portant truth, which ought to teach mankind, that the objects 
of rational desire are within their reach, provided they have 
the will and intelligence to employ the true means of obtain- 
ing them. Those means it is the purpose of this work to in- 
vestigate and unfold. 



CHAPTER IIL 



OF THE NATURE OF PRODUCTIVE CAPITAL, AND THE MODE IN 
WHICH IT CONCURS IN THE BUSINESS OP PRODUCTION. 

As we advance in the investigation of the processes of in- 
dustry, we can not fail to perceive, that mere unassisted in- 
dustry is insufficient to invest things with value. The human 
agent of industry must, besides, be provided with pre-existing 
products; without which his agency, however skilful and in- 
telligent, would never be put in motion. These pre-existing 
requisites are, 

1. The tools and implements of the several arts. The hus- 
bandman could do nothing without his spade and mattock, the 
weaver without his loom, or the mariner without his ship. 

2. The products necessary for the subsistence of the indus- 
trious agent, so long as he is occupied in completing his share 
of the work or production. This outlay of his subsistence is, 
indeed, in the long run, replaced by the product he is occupi- 
ed upon, or the price he will receive for it; but he is obliged 
continually to make the advance. 



12 ON PRODUCTION. book i 

3. The raw materials, which are to be converted into finish- 
ed products by the means of his industry. These materials, 
it is true, are often the gratuitous offering of nature, but they 
are much more generally the products of antecedent industry 
as in the case of seed-corn supplied by agriculture, metals, the 
fruit of the labour of the miner and smelter, drugs brought by 
the merchant perhaps from the extremities of the globe. The 
value of all these must be found in advance by the industrious 
agent that works them up. 

The value of all these items constitute what is denominated 
productive capital. 

Under this head of productive capital must likewise be classed 
the value of all erections and improvements upon real or landed 
property, which increase its annual produce, as well as that of 
the farming live and dead stock, that operates as machinery in 
aid of human industry. 

Another item of productive capital, is money, whenever it is 
employed to facilitate the interchange of products, without 
which, production could never make any progress. Money 
distributed through the whole mechanism of human industry, 
like the oil that greases the wheels of complex machinery, 
gives the requisite ease and facility to its movements. But 
gold and silver are not productive, unless employed by indus- 
try: they are like the oil in a machine remaining in a state of 
inaction. And so also of all other tools and implements of 
human industry. 

It would evidently be a great mistake to suppose, that the 
capital of a community consists solely of its money. The 
merchant, the manufacturer, the cultivator, commonly have 
the least considerable portion of the value composing their 
capital invested in the form of money; nay, the more active 
their concern is, the smaller is the relative proportion of their 
capital so vested to the residue. The funds of the merchant 
are placed out in goods on their transit by land or water, or 
warehoused in different directions: the capital of the manufac- 
turer chiefly consists of the raw material in different stages of 
progress, of tools, implements, and necessaries for his work- 
men: while that of the cultivator is vested in farming build- 
ings, live stock, fences, and inclosures. They all studiously 
avoid burthening themselves with more money than is suffi- 
cient for current use. 

What is true of one, two, three, or four individuals, is true 
of Society in the aggregate. The capital of a nation is made 
up of the sum total of private capitals; and, in proportion as a 
nation is prosperous and industrious, in the same proportion 
is that part of its capital, vested in the shape of money, trifling 
compared'to the amount of the gross national capital. Neckar 
estimates the circulating medium in France, in the year 1784, 
at about 2200 millions oifraoics, and there are reasons for be- 
lieving his estimate exaggerated; but this is not the time to 
state them. However, if account be taken of all the works, 



CHAP. III. 



ON PRODUCTION. 



13 



enclosures, live stock, utensils, machines, ships, commodities, 
and provisions of all sorts belonging to the French people or 
their government in every part of the world; and if to these 
be added the furniture, decorations, Jewellery, plate, and other 
items of luxury or convenience, whereof they were possess- 
ed, at the same period, it will be found, that 2200 millions of 
circulating medium was a mere trifle compared to the aggre- 
gate of these united values.* 

Beeke estimates the total capital of Great Britain at 2300 
millions sterling,! (equal to more than 55,000 millions of our 
francs.) The total amount of her circulating specie, before 
the establishment of her present paper money, was never 
reckoned by the highest estimates of more than 47 millions 
sterling;^ that is to say, about l-50th of her capital. Smith 
reckoned it at no more than 18 millions, which could not be 
the l-127thpart.(l) 

Capital in the hands of a national government forms a part 
of the gross national capital. 

We shall see, by and by, how capital, which is subject to a 
continual wear and consumption in the process of production, 
is continually replaced by the very operation of production; or 
rather, how its value, when destroyed under one form, re-ap- 
pears under another. At present it is enough to have a distinct 
conception, that, without it, industry could produce nothing. 
Capital must work, as it were, in concert with industry; and 
this concurrence is what I call, the jJ^^oductive agency of capi- 
tal. 

* Arthur Young, in his "Journey in France," in spite of the unfavoura- 
ble view he gives of French agTiculture, estimates the total capital employ- 
ed in that kingdom in tliat branch of industiy alone, at more than 11,000 
milhons of /rancs/ and states his belief, that the capital of Great Britain, simi- 
lai'iy employed, is in the proportion of two to one. 

•j- Observations on the produce of the income-tax. 

i Pitt, who is supposed to have over-rated the quantity of specie, state.3- 
the gold at forty -four millions; and Price estimates the silver at three mil- 
lions, making a total- of forty seven millions. 



(1) [The amount of the national capital of Great Britain, including Ireland, 
according to a conjectural estimate made by Ur. Colquhoun, in the year 1814y. 
is as follows; 



Productive 
Property. 



England .... 

Scotland .... 

Ireland .... 

Military stores & other 
property common to 
Britain and Ireland, 

Total of each kind of 
property, . . . 



i.1,543,400,000 
239,580,000 
467,660,000 



i.2,250,640,000 



Unproduc- 
tive. 



271,500,000 
38,500,000 
87,000,000 



Gov'ment .Total of each 
Property. Country. 



2,000,000 1,846,900,000 



3,000,000 
9,000,000 



281.080,000 
563,660,00a 

45,000,000. 



397,000,000 44,000,000 2,736,640,000 
Amekican Editor. 



14 ON PRODUCTION. book i. 



CHAPTER IV. 

OF THE NATURAL AGENTS THAT ASSIST IN THE PRODUCTION 
OF WEALTH, AND SPECIALLY OF LAND. 

Independently of the aid that industry receives from capi- 
tal, that is to say, from products of her own previous creation, 
towards the creation of still further products, she avails her- 
self of the agency and powers of a variety of agents not of her 
own creation, but offered spontaneously by nature; and from 
the co-operation of these natural agents derives a portion of 
the utility she communicates to things. 

Thus, when a field is ploughed and sown, besides the sci- 
ence and the labour employed in this operation, besides the 
pre-created values brought into use, the values, for instance, 
of the plough, the harrow, the seed-corn, the food and clothing 
consumed by the labourers during the process of production^ 
there is a process performed by the soil, the air, the rain, and 
the sun, wherein mankind bears no part, but which neverthe- 
less concurs in the creation of the new product that will be ac- 
quired at the season of harvest. This process I call the pro- 
ductive agency of natural agents. 

The term natural agents is here employed in a very ex- 
tensive sense; comprising not merely inanimate bodies, whose 
agency operates to the creation of value, but likewise the 
laws of the physical world, as gravitation, which makes the 
weight of a clock descend; magnetism, which points the needle 
of the compass: the elasticity of steel; the gravity of the atmo- 
sphere; the property of heat to discharge itself by ignition, &c. 
&c. 

The productive faculty of capital is often so interwoven with 
that of natural agents, that it is difficult, or perhaps impossible, 
to assign, with accuracy, their respective shares in the business 
of production. A hot house for the raising of exotic plants, a 
meadow fertilized by judicious irrigation, owe the greater part 
of their productive powers to works and erections, the effect of 
antecedent production, which form a part of the capital devot- 
ed to the furtherance of actual and present production. The 
same may be said of land newly cleared and brought into cul- 
tivation; of farm-buildings; of enclosures; and of all other per- 
manent ameliorations of a landed estate. These values are 
items of capital, though it be no longer possible to sever them 
from the soil they are attached to. * 

* It is for the pi'opvietor of the land and of the capital respectively, when 
the ownership is in different persons, to settle between them the respective 



CHAP. IV. ON PRODUCTION. 15 

In the employment of machinery, which wonderfully aug- 
ments the productive power of man, the product obtained is 
due partly to the value of the capital vested in the machine, 
and partly to the agency of natural powers. Suppose a walk- 
ing-wheel,* worked by ten men, to be used in place of a wind- 
mill, the product of the mill might be considered as the fruit of 
the productive agency of a capital consisting of the value of the 
machine, and of the labour often men employed in turning the 
wheel. If the walking-wheel be supplanted by sails, it is evi- 
dent that the wind, a natural agent, does the work of ten hu- 
man beings. 

In this instance, the absence of the natural agent might be 
remedied, by the employment of another power; but there are 
many cases, in which the agency of nature could not possibly 
be dispensed with, and is yet equally positive and real: for 
example, the vegetative power of the soil, the vital principle 
which concurs in the production of the animals domesticated 
to our use. A flock of sheep is the joint result of the owner's 
and shepherd's care, and the capital advanced in fodder, shel- 
ter, and shearing, and of the action of the organs and viscera 
with which nature has furnished these animals. 

Thus nature is commonly the fellow labourer of man and his 
instruments; a fellowship advantageous to him in proportion 
as he succeeds in dispensing with his own personal agency, and 
that of his capital, and in throwing upon nature a larger part 
of the burthen of production. 

Smith has taken infinite pains to explain, how it happens 
that civilized communities enjoy so great an abundance of pro- 
ducts, in comparison with nations less polished, and in spite of 
the swarm of idlers and unproductive labourers, that is to be 
met with in society. He has traced the source of that abun- 
dance to the division of labour;t and it can not be doubted, that 
the productive power of industry is wonderfully enhanced by 
that division, as we shall hereafter see by following his steps; 
but this circumstance alone is not sufficient to explain a phe- 
nomenon, that will no longer surprise, if we consider the pow- 
er of the natural agents that industry and civilization set at 
work for our advantage. 

Smith admits that human intelligence, and the knowledge 
of the laws of nature, enable mankind to turn the resources 
she offers to better account: but he goes on to attribute to the 

value and efficacy of tlie agency of these two productive agents. The 
world at large may be content to comprehend, without taking the trouble 
of measuring their respective shares in the production of wealth. 

* A wheel in form of a drum, turned by men walking inside, {roue a 
marchre. ) 

f Take his own words: " It is the great multiplication of the productions 
of all the different arts, in consequence of the division of labour, which oc- 
casions, in a well-governed society, that universal opulence, which extends 
itself to the lowest ranks of the people." Wealth of Nations, b. i. c. 1. 



16 ON PRODUCTION. book i. 

division of labour this very degree of intelligence and know- 
ledge; and he is right to a certain degree; for a man, by the 
exclusive pursuit of a single art or science, has ampler means 
of accelerating its progress towards perfection. But, when 
once the system of nature is discovered, the production result- 
ing horn the discovery, is no longer the product of the inven- 
tor's industry. The man who first discovered the property of 
fire to soften metals, was not the actual creator of the utility 
this process adds to smelted ore. That utility results from the 
physical action of fire, in concurrence, it is true, with the la- 
bour and capital of those who employ the process. But are 
there no processes that mankind owes the knowledge of to 
pure accident? or that are so self-evident, as to have required no 
skill to discover? When a tree, a natural product, is felled, is 
society put into possession of no greater produce than that of 
the mere labour of the woodman? 

From this error Smith has drawn the false conclusion, that 
all values produced represent pre-exerted human labour or in- 
dustry, either recent or remote; or, in other words, that wealth 
is nothing more than labour accumulated; from which position 
he infers a second consequence equally erroneous, viz. that la- 
bour is the sole measure of wealth, or of value produced. 

This system is obviously in direct opposition to that of the 
Economists of the eighteenth century, who on the contrary, 
maintained that labour produces no value without consuming 
an equivalent; that, consequently, it leaves no surplus, no net 
produce; and that nothing but the earth produces gratuitous 
value, — therefore nothing else can yield net produce. Each of 
these positions has been reduced to system; I only cite them 
to warn the student of the dangerous consequences of an error 
in the outset,* and to bring the science back to the simple ob- 
servation of facts. Now facts demonstrate, that values produc- 
ed are referable to the agency and concurrence of industry, of 
capitaljt and of natural agents, whereof the chief, though by 

* Amongst other dangerous consequences of the system of the Economists, 
is the notable one of substituting a land-tax in lieu of all other taxation; in 
the certainty, that this tax would affect all produced value whatever. Up- 
on a contrary principle, and in pursuance of the maxims laid down by Smith, 
the net produce of land and of capital ought to be exempted from taxation 
altogether, if with him we take for granted, that they produce nothing spon- 
taneously; but this would be as unjust on the opposite side. 

f Although Smith has admitted the productive power of land, he has dis- 
regarded the completely analogous power of capital. A machine, an oil- 
mill for example, which employs a capital of 20,000/r., and gives an annual 
net return of 1000 /r., after paying all expenses, gives a product quite assvib- 
stantial as that of a real estate, that cost 20,000 /r., and brings an annual 
rent or net produce of 1000 fr., all charges deducted. Smith maintains, 
that a mill which has cost 20,000 /;-., represents labour to that amount, be- 
stowed at sundry times upon the different parts of its fabric; therefore, that 
the net produce of the mill is the net produce of that precedent labour. 
But he is mistaken: granting, for argument sake, the value of the mill itself 
to be the value of this previous labour; yet the value daily produced by the 



CHAP. V. ON PRODUCTION. 17 

no means the only one, is land capable of cultivation; atid that 
no other but these three sources can produce value, or add to 
human wealth. 

Of natural agents, some are susceptible of appropriation, 
that is to say, of becoming the property of an occupant, as a 
field, a current of water; others can not be appropriated, but 
remain liable to public use, as the wind, the sea, free navigable 
streams, the physical or chemical action of bodies one upon 
another, &c. &c. 

We shall by and by have an opportunity of convincing our- 
selves, that this alternative, of productive agents being or not 
being susceptible of appropriation, is highly favourable to the 
progress of wealth. Natural agents, like land, which are sus- 
ceptible of appropriation, would not produce nearly so much, 
were not the proprietors certain of exclusively gathering their 
produce, and able to vest in them, with full confidence, the 
capital which so much enlarges their productiveness. On the 
other hand, the indefinite latitude allowed to industry to oc- 
cupy at will the unappropriated natural agents, opens a bound- 
less prospect to the extension of her agency and production. 
It is not nature, but ignorance and bad government, that limit 
the productive powers of industry. 

Such of the natural agents as are susceptible of appropria- 
tion, form an item of productive means; for they do not yield 
their concurrence without equivalent; which equivalent, as 
we shall see in the proper place, forms an item of the reve- 
nues of the appropriators. At present we must be content to 
investigate the productive operation of natural agents of every 
description, whether already known, or hereafter to be dis- 
covered. 



CHAPTER V, 

OP THE MODE IN WHICH INDUSTRY, CAPITAL, AND NATURAL 
AGENTS UNITE FOR THE PURPOSE OP PRODUCTION. 

We have seen how industry, capital and natural agents 
concur in production, each in its respective department; and 

mill is a new value altogether; just the same, as the rent of a landed estate 
is a totally different value from the value of the estate itself, and may be 
consumed, without at all affecting' the value of the estate. If capital con- 
tained itself no productive faculty, independent of that of the labour which 
created it, how is it possible, that capital could furnish a revenue in per- 
petuity, independent of the profit of the industry that empWs it? The la- 
bour that created the capital would receive wages after it ceased to operate, 
— would have interminable value; which is absurd. It will be seen by and 
by, that these notions have not been mere matter of speculjition. 

10 



18 ON PRODUCTION. book i. 

we have likewise seen, that these three sources are indispen- 
sable to the creation of products. It is not, however, abso- 
lutely necessary that they should all belong to the same indi- 
vidual. 

An industrious person may lend his industry to another pos- 
sessed of capital and land only. 

The owner of capital may lend it to an individual possessing 
land and industry only. 

The landholder may lend his estate to a person possessing 
capital and industry only. 

Whether the thing lent be industry, capital, or land, inas- 
much as all three concur in the creation of value, their use also 
bears value, and is commonly paid for. 

The price paid for the loan of industry is called wages. 

The price paid for the loan of capital is called interest. 

And that paid for a loan of land is called rent. 

The ownership of land, capital, and industry are sometimes 
united in the same hands. A man who cultivates his own gar- 
den at his own expense, is at once the possessor of land, capital 
and industry, and exclusively enjoys the profit of proprietor, 
capitalist, and labourer. 

The knife-grinder's craft requires no occupancy of land; he 
carries his stock in trade upon his shoulders, and his skill and 
industry at his fingers' ends; being at the same time adven- 
turer,(a) capitalist, and labourer. 

It is seldom that we meet with adventurers in industry so 
poor, as not to own at least a share of the capital embarked in 
their concern. Even the common labourer generally advances 
some portion; the bricklayer comes with his trowel in his 
hand; the journeyman tailor is provided with thimble and 
needles; all are clothed better or worse; and though it be true, 
that their clothing must be found out of their wages, still they 
find it themselves in advance. 

Where the land is not exclusive property, as is the case with 
some stone quarries, with public rivers and seas to which in- 
dustry resorts for fish, pearls, coral, &c. products may be ob- 
tained by industry and capital only. 

Industry and capital are likewise competent to produce by 
themselves, when that industry is employed upon products of 
foreign growth, procurable by capital only; as in the European 
manufacture of cotton and many other articles. So that every 
class of manufacture is competent to raise products, provided 
there be industry and capital exerted. The presence of land 

(a) The term entrepreneur is difficult to render in English; the corres- 
ponding' word, undertaker, being alseady appropriated to a limited sense. 
it signifies, the master-manufacturer in manufacture, the farmer in agricul- 
ture, and the merchant in commerce; and generally in all three branches, the 
perr.on who takes upon himself the immediate responsibility, risk, and con- 
duct of a concern of industry, whether upon his own or a borrowed capital. 
For want of a better word, it will be rendered into English by the term 
adventurer. T. 



CHAP. V. ON PRODUCTION. 19 

is not absolutely necessary, unless perhaps the area whereon 
the work is done, and which is commonly rented, may be 
thought to come under this description, as in extreme strict- 
ness it certainly must. However, if the ground where the 
business of industry is carried on, be reckoned as land used, 
it must at least be admitted, that, with aid of a large capital, 
an immense manufacturing concern may be conducted upon a 
very trifling spot of ground. Whence this conclusion may be 
drawn, that national industry is limited, not by territorial ex- 
tent, but by extent of capital. 

A slocking manufacturer with a capital, say of 20,000 Jr., 
may keep in constant work ten stocking frames. If he man- 
ages to double his capital, he can employ twenty; that is to say, 
he may buy ten more frames, pay double ground-rent, pur- 
chase double the quantity of silk or cotton to be wrought into 
stockings, and make the requisite advances to double the num- 
ber of workmen, &c. &c. 

But that portion of agricultural industry, devoted to the til- 
lage of land, is, in the course of nature limited by extent of 
surface. Neither individuals nor communities can extend or 
fertilize their territory, beyond what the nature of things per- 
mits; but they have unlimited power of enlarging their capital, 
and, consequently, of setting at work a larger body of indus- 
try, and thus of multiplying their products; in other words, 
their wealth. 

There have been instances of people, like the Oeneyese, 
who with a territory that has not produced the twentieth part 
of the necessaries of life, have yet contrived to live in afflu- 
ence. The natives of the barren glens of Jura are in easy cir- 
cumstances, because many mechanical ails are there practised. 
In the 13th century, the world beheld the republic of Venice, 
ere it held a foot of land in Italy, derive wealth enough from 
its commerce to possess itself of Dalmatia, together with most 
of the Greek isles, and even the capital of the Greek empire. 
The extent and fertility of a nation's territory depend a good 
deal upon its fortunate position. Whereas the power of its in- 
dustry and capital depends upon its own good management; 
for it is always competent to improve the one and augment 
the other. 

Nations deficient in capital labour under great disadvantage 
in the sale of their produce; being unable to sell at long credit, 
or to grant time or accommodation to their home or foreign 
customers. If the deficiency be very great indeed, they may 
be unable even to make the advance of the raw material and 
their own industry. This accounts for the necessity, in the 
Indian and Russian trade, of remitting the purchase-money six 
months or sometimes a year in advance, before the time when 
an order for goods can be executed. These nations must be 
highly favoured in other respects, or they never could make 
considerable sales in the face of such a disadvantage. 

Having informed ourselves of the method in which the three 



20 ON PRODUCTION. book i. 

great agents of production, industry, capital, and natural agents, 
concur in the creation of products, that is to say, of things 
applicable to the uses of mankind, let us proceed to analyse 
more minutely the particular operation of each. The inquiry 
is important, inasmuch as it leads imperceptibly to the know- 
ledge of what is more and what is less favourable to produc- 
tion, the true source of individual affluence, as well as of na- 
tional power. 



CHAPTER VI. 



OF THE OPERATIONS COMMON TO ALL BRANCHES OF INDUSTRY 

ALIKE. 

If we examine closely the workings of human industry, it 
will be found, that, to whatever object it be applied, it consists 
of three distinct operations. 

The first step towards the attainment of any specific product, 
is the study of the laws and course of nature regarding that 
product. A lock could never have been constructed without 
a previous knowledge of the properties of iron, the method of 
extracting from the mine and refining the ore, as well as of 
mollifying and fashioning the metal. 

The next step is the application of this knowledge to an use- 
ful purpose: for instance, the conclusion, or conviction, that a 
particular form, communicated to the metal, will furnish the 
means of closing a door to all the wards, except to the posses- 
sor of the key. 

The last step is the execution of the manual labour, suggest- 
ed and pointed out by the two former operations; as, for in- 
stance, the forging, filing, and putting together of the different 
component parts of the lock. 

These three operations are seldom performed by one and 
the same person. It commonly happens, that one man studies 
the laws and conduct of nature; that is to say, the philosopher, 
or man of science, of whose knowledge another avails himself 
to create useful products; being either agriculturist, manufac- 
turer, or trader; while the third supplies the executive exer- 
tion, under the direction of the former two; which third person 
is the operative workman or labourer. 

All products whatever will be found on analysis, to derive 
existence from these three operations. 

Take the example of a sack of wheat, or a pipe of wine. 
The first stage towards the attainment of either of these pro- 



CHAP. VI. ON PRODUCTION. 21 

ducts was, the discovery by the natural philosopher, or geolo- 
gist, («) of the conduct and course of nature in the production 
of the grain or the grape; the proper season and soil for sow- 
ing or planting; and the care requisite to bring the herb or 
plant to maturity. The tenant, if not the proprietor himself, 
must afterwards have applied this knowledge to his own par- 
ticular object, brought together the means requisite to the crea- 
tion of an useful product, and removed the obstacles in the 
way of its creation. Finally, the labourer must have turned 
up the soil, sown the seed, or pruned and bound up the vine. 
These three distinct operations were indispensable to the com- 
plete production of the product, corn or wine. 

Or take the example of a product of external commerce; 
such as indigo. The science of the geographer, the traveller, 
and the astronomer, bring us acquainted with the spot where 
it is to be met with, and the means of crossing the seas to get 
at it. The merchant equips his vessels, and sends them in 
quest of the commodity; and the mariner and land carrier per- 
form the mechanical part in this production. 

But, looking at the substance, indigo, as a mere primary 
material of a further or secondary product, of blue cloth for 
instance; we all know that the chymist is first applied to for 
information, as to the nature of the substance, the method of 
dissolving it, and mordents requisite for fixing the colour; the 
means of perfecting the process of dyeing are then collected 
by the master-manufacturer, under whose orders the labourer 
executes the manual part of the process. 

Industry is, in all cases, divisible into theory, application, 
and execution. Nor can it approximate to perfection in any 
nation, till that nation excel in all three branches. A people, 
that is deficient in one or other of them, can not acquire pro- 
ducts, which are and must be the result of all three. And 
thus we may learn to appreciate the vast utility of many 
sciences, which, at first sight, appear to be objects of mere 
curiosity and speculation.* 



(a) Agronome; I am not aware of any corresponding' English term, de- 
noting the student in that branch of geology conversant with the properties 
of the surface of the earth; in other words, the scientific agricultui'ist. T. 

* Besides the direct impulse, given by science to progressive industry, 
and which indeed is indispensable to its success, it affords an indirect as- 
sistance, by the gradual removal of prejudice; and by teaching mankind to 
rely more upon their own exertions, than on the aid of superhuman power. 
Iguorance is the inseparable concomitant of practical habits, of that slavery 
of custom which stands in the Vv^ay of all improvement; it is ignorance that 
imputes to a supernatm-al cause the ravages of an epidemical disease, which 
might perhaps be easily prevented or eradicated, and makes mankind re- 
cur to superstitious observances, when precaution, or the application of the 
remedy, is all that is wanted. Sciences, like facts, are hnked together by 
a chain of general connexion, and yield one another mutual support and 
corroboration. 



22 ON PRODUCTION. book. i. 

The negroes of the coast of Africa are possessed of consider- 
able ingenuity, and excel in all athletic exercises and handi- 
craft occupations; but they seem greatly deficient in the two 
previous operations of industry. Wherefore, they are under 
the necessity of purchasing from Europe the stuffs, arms, and 
ornaments, they stand in need of. Their country yields so 
few products, notwithstanding its natural fertility, that the 
slave traders are obliged to lay in their stock of provisions be- 
forehand, to feed the slaves during the voyage.* 

In qualities favourable to industry, the moderns have greatly 
surpassed the ancients, and the Europeans outstript all the 
other nations of the globe. The meanest inhabitant of an Eu- 
ropean town enjoys innumerable comforts unattainable to the 
sovereign of a savage tribe. The single article glass, that ad- 
mits light into his apartment, and, at the same time, excludes 
the inclemency of the weather, is the beautiful result of obser- 
vation and science, accumulated and perfected during a long 
course of ages. To obtain this luxury, it was necessary pre- 
viously to know, what kind of sand was convertible into a 
substance possessing extension, solidity, and transparency; as 
well as by the compound of what ingredients, and by what 
degree of heat, the substance was obtainable: to ascertain, be- 
sides, the best form of furnace. The very wood-work, that 
supports the roof of a glass-house, requires, in its construction, 
the most extensive knowledge of the strength of timber, and 
of the means of employing it to advantage. 

Nor was the mere knowledge of these matters sufficient; 
for that knowledge might possibly have lain dormant in the 
memory of one or two persons, or in the pages of literature. 
It was further requisite, that a manufacturer should have been 
found, possessed of the means of reducing the knowledge into 
practice; who should have first made himself master of all that 
was known of that particular branch of industry, and after- 
wards have accumulated, or procured, the requisite capital, 
collected artificers and labourers, and assigned to each his re- 
spective occupation. 

Finally, the work must have been completed by the manual 
skill of the workmen employed; some in constructing the 
buildings and furnaces, some in keeping up the fire, mixing 
up the ingredients, blowing, cutting, rolling out, fitting and 
fixing the pane of glass. The utility and beauty of the result 
ing product, is inconceivable to those who have never beheld 
this admirable creation of human industry. By means of in- 
dustry, the vilest materials have been invested with the high- 
est degree of utility. The very rags and refuse of wearing ap- 
parel have been transformed into the white and thin sheets, 
that convey from one end of the globe to the other, the requi- 
sitions of commerce and the particulars of art; that serve as 
the depositaries of the conceptions of genius, and the vehicles 

* See (Euvres de Poivre, p. 77, 78. 



CHAP. VI. ON PRODUCTION. 23 

of human experience from one age to another; to them we look 
for the evidence of our properties; to them we entrust the 
most noble and amiable sentiments of the heart, and by them 
we awaken corresponding feelings in the breasts of our fellow- 
creatures. The extraordinary facilities for the communication 
of human intelligence which paper affords, entitles it to be con- 
sidered as one of the products, that have been most efiicacious 
in ameliorating the condition of mankind. Fortunate, indeed, 
would it have been, had an engine so powerful never have been 
made the vehicle of falsehood, or the instrument of tyranny! 

It is worth while to remark, that the knowledge of the man 
of science, indispensable as it is to the development of indus- 
try, circulates with ease and rapidity from one nation to all the 
rest. And men of science have themselves an interest in its 
ditfusion ; for upon that diffusion they rest their hopes of for- 
tune, and, what is more prized by them, of reputation too. 
For this reason, a nation, in which science is but little culti- 
vated, may nevertheless carry its industry to a very great 
length, by taking advantage of the information derivable from 
abroad. But there is no way of dispensing with the other two 
operations of industry, the art of applying the knowledge of 
man to the supply of his wants, and the skill of execution. 
These qualities are of advantage to none but their possessors^ 
so that a country well stocked with intelligent merchants, 
manufacturers, and agriculturists, has more powerful means of 
attaining prosperity, than one devoted chiefly to the pursuit 
of the arts and sciences. At the period of the revival of litera- 
ture in Italy, Bologna was the seat of science; but wealth was 
centered in Florence, Genoa, and Venice. 

In our days, the enormous wealth of Britain is less owing 
to her own advances in scientific acquirements, high as she 
ranks in that department, than to the wonderful practical skill 
of her adventurers in the useful application of knowledge, and 
the superiority of her workmen in rapid and masterly execu- 
tion. The national pride, that the English are often charged 
with, does not prevent their accommodating themselves with 
wonderful facility to the tastes of their customers and the con- 
sumers of their produce. They supply with hats both the 
north and the south, because they have learnt to make them 
light for the one market, and warm and thick for the other 
Whereas the nation that makes but of one pattern, must be 
content with the home market only. 

The English labourer seconds the master manufacturer; he 
is commonly patient and laborious, and does not willingly 
send out an article from his hands, without giving it the ut- 
most possible precision and perfection; not that he bestows 
more time upon it, but that he gives it more of his care, atten- 
tion, and diligence, than the workmen of most other nations. 

There is no people, however, that need despair of acquiring 
the qualities requisite to the perfection of their industry. It 
is but 150 years since England herself had made so little pro- 



24 ON PRODUCTION. book i. 

gress,that she purchased nearly all her woollens from Belgium; 
and it is not more than 80 years since Germany supplied with 
cotton goods the very nation, that now manufactures them for 
the whole world.* 

I have said, that the cultivator, the manufacturer, the trader, 
make it their business to turn to profit the knowledge already 
acquired, and apply it to the satisfaction of human wants. I 
ought further to add, that they have need of knowledge of 
another kind, which can only be gained in the practical pur- 
suit of their respective occupations, and may be called their 
technical skill. The most scientific naturalist, with all his 
superior information, would probably succeed much worse 
than his tenant, in the attempt to improve his own land. A 
first-rate mechanist would most likely spin very indifferent- 
ly without having served his apprenticeship, though admirably 
skilled in the construction of the cotton-machinery. In the 
arts there is a certain sort of perfection, that results only from 
repeated trials, sometimes successful and sometimes the con- 
trary. So that science alone is not sufficient to ensure their 
progress, without the aid of experiment, which is always at- 
tended with more or less of risk, and does not always indem- 
nify the adventurer, whose profit, even when successful, is 
moderated by competition; although society at large receives 
the accession of a new product, or, what amounts to the same 
thing, of an abatement in the price of an old one. 

In agriculture, experiments usually cost the rent of the soil 
for a year or more, over and above the labour and the capital 
engaged in them. 

In manufacture, experiment is hazarded on safer grounds 
of calculation, capital engaged for a much shorter period, and, 
if success ensue, the adventurer rewarded by a longer period 
of exclusive advantage, because his process is less open to ob- 
servation. In some places, too, the exclusive advantage is pro- 
tected by patents of invention. For all which reasons, the 
progress of manufacturing is generally more rapid and more 
diversified than that of agricultural industry. 

In commercial industry, the risk of experiment would be 
greater than in the other two branches, if the costs of the ad- 
venture had no auxiliary and concurrent object. But it is usu- 
ally in the course of a regular trade, that a merchant hazards 
the introduction of a virgin commodity of foreign growth into 
an untried market. In this manner it was that the Dutch, 
about the middle of the seventeenth century, while prosecuting 
their commerce with China, with no very sanguine expecta- 

* The cotton manufacture did not exist in England in tlie 17th century. 
In 170S, we see, by the retiirns of the English customs, that the raw cotton 
manufactured in that country then amounted to no more than 1, 170, 880 
pounds weight. In 1785, the quantity imported was 6,706,000Ibs.; but in 
1790 it had got up to 25,941,0001bs., and in 1817 to as much as 131,951,000 
lbs., for the English market and for re-exportation. 



CHAP. VI. ON PRODUCTION. 25 

tion, made experiment of a small assortment of dried leaves, 
from which the Chinese were in the habit of preparing their 
favourite beverage. Thus commenced the tea-trade, which 
now occasions the annual transport of more than 45 millions 
of pounds weight, that are sold in Europe for a sum of more 
than400,000,000/r.* 

In some cases of very rare occurrence, boldness is nearly 
certain of success. When the Europeans had recently dis- 
covered the passage round the Cape of Good Hope and the 
continent of America, their world was suddenly expanded to 
the East and West; and such was the infinity of new objects 
of desire in two hemispheres, whereof one was not at all, and 
the other but very imperfectly, known before, that an adven- 
turer had only to make the voyage, and was sure of selling his 
returns to great advantage. 

In all but such extraordinary cases, it is perhaps prudent to 
defray the charges of experiments in industry, not out of the 
capital engaged in the regular and approved channels of pro- 
duction, but out of the revenue that individuals have to dispose 
of at pleasure, without fear of impairing their fortune. The 
whims and caprices that divert to an useful end the leisure and 
revenue which most men devote to mere amusement, or per- 
haps to something worse, can not be too highly encouraged. I 
can conceive no more noble employment of wealth and talent. 
A rich and philanthrophic individual may, in this way, be the 
means of conferring upon the industrious classes, and upon 
consumers at large, in other words, upon the mass of mankind, 
a benefit far beyond the mere value of what he actually dis- 
burses, perhaps beyond the whole amount of his fortune, how- 
ever princely it may be. Who will attempt to calculate the 
value conferred on mankind by the unknown inventor of the 
ploughPt 

A government, that knows and practises its duties and has 
large resources at its disposal, does not abandon to individuals 
the whole glory and merit of invention and discovery in the 
field of industry. The charges of experiment when defrayed 
by the government, are not subtracted from the national capi- 
tal, but from the national revenue; for taxation never does, or, 

* Voyage Commerciel et Politique aux Indes Orientales, par M. Felix Re- 
nouard de Sainte Croix. 

f Thanks to the art of printing, the names of the benefactors of mankind 
will henceforward be lastingly recorded: and, if I mistake not, with more 
veneration than those which derive lustre from the deplorable exploits of 
military prowess. Among these will be preserved the names of Olivier de 
Serres, the father of French agriculture; the first who established an ex- 
perimental farm; of Duhamel, of Malshet-bes, to whom France is indebted 
for many vegetables now naturalized in her soil and climate : of Lavoisier, 
whose new system of chemistry has effected a still more important revolu- 
tion in the arts; and of the numerous scientific travellers of modern times; 
for travels, with an useful object, may be regarded as adventures in the field 
ofindustry. 

11 



26 ON PRODUCTION. book i. 

at least, never ought to touch any thing, beyond the revenues 
of individuals. The portion of them so spent is scarely felt 
at all, because the burthen is divided among innumerable con- 
tributors; and, the advantages resulting from success being a 
common benefit to all, it is by no means inequitable that the 
sacrifices, by which they are obtained, should fall on the com- 
munity at large. 



CHAPTER VII. 

OF THK LABOUR OP MANKIND, OF NATURE, AND OF MA- 
CHINERY RESPECTIVELY. 

By the term labour I shall designate that continuous action, 
exerted to perform any one of the operations of industry, or a 
part only of one of those operations. 

Labour, upon whichever of those operations it be bestowed, 
is productive, because it concurs in the creation of a product. 
Thus the labour of the philosopher, whether experimental or 
literary, is productive; the labour of the adventurer or mas- 
ter-manufacturer is productive, although he perform no actual 
manual work; the labour of every operative workman is pro- 
ductive, from the common day-labourer in agriculture to the 
pilot that governs the motion of a ship. 

Labour of an unproductive kind, that is to say, such as 
does not contribute to the raising of the products of some 
branch of industry or other, is seldom undertaken voluntarily; 
for labour, under the definition above given, implies trouble, 
and trouble so bestowed could yield no compensation or result- 
ing benefit; wherefore, it would be mere folly or waste in the 
person bestowing it. When trouble is directed to the stripping 
another person of the goods in his possession by means of fraud 
or violence, what was before mere extravagance and folly, de- 
generates to absolute criminality; and there results no pro- 
duction, but only a forcible transfer of wealth from one indi- 
vidual to another. 

Man, as we have already seen, obliges natural agents, and 
even the products of his own previous industry, to work in 
concert with him in the business of production. There will, 
therefore, be no difficulty in comprehending the terms labour 
Gx productive service of nature, and labour or productive ser- 
vice of capital. 

The labour performed by natural agents, and that executed 
by pre-existent products, to which we have given the name of 
capital, are closely analogous, and are perpetually confounded 
one with the other: for the tools and machines which form a 



CHAP. VII. ON PRODUCTION. 27 

principal item of capital, are commonly but expedients more 
or less ingenious, for turning natural powers to account. The 
steam engine is but a complicated method of taking advantage 
of the alternation of the elasticity of water reduced to vapour, 
and of the weight of the atmosphere. So that, in point of fact, 
a steam-engine, employs more productive agency, than the 
agency of the capital embarked m it: for that machine is an 
expedient for forcing into the service of man a variety of na- 
tural agents, whose gratuitous aid may perhaps infinitely ex- 
ceed in value the interest of the capital vested in the machine. 

It is in this light, that all machinery must be regarded, from 
the simplest to the most complicated instrument, from a com- 
mon file to the most expensive and complex apparatus. Tools 
are but simple machines, and machines but complicated tools, 
whereby we enlarge the limited powers of our hands and fin- 
gers; and both are, in many respects, mere means of obtaining 
the co-operation of natural agents.* Their obvious effect is to 
make less labour requisite for the raising the same quantity of 
produce, or, what comes exactly to the same thing, to obtain 
a larger produce from the same quantity of human labour. — 
And this is the grand object and the acme of industry. 

Whenever a new macnine, or a new and more expeditious 
process is substituted in the place of human labour previously 
in activity, part of the industrious human agents, whose service 
is thus ingeniously dispensed with, must needs be thrown out 
of employ. Whence many objections have been raised against 
the use of machinery, which has been often obstructed by 
popular violence, and sometimes by the act of authority itself". 

To give any chance of wise conduct in such cases, it is ne- 
cessary beforehand to acquire a clear notion of the economi- 
cal efi'ect resulting from tlie introduction of machinery. 

A new machine supplants a portion of human laoour, but 
does not diminish the amount of the product; if it did, it would 
be absurd to adopt it. When water-carriers are relieved in 
the supply of a city by any kind of hydraulic engine, the in- 
habitants are equally well supplied with water. The revenue 
of the district is at least as great, but it takes a difierent di- 
rection. That of the water-carriers is reduced, while that of 
the mechanists and capitalists, who furnish the funds, is in- 
creased. But, if the superior abundance of the product and 
the inferior charges of its production, lower its exchangeable 
value, the revenue of the consumers is benefited; for to them 
every saving of expenditure is so much gain. 

This new direction of revenue, however advantageous to 
the community at large, as we shall presently see, is always 
attended with some painful circumstances. For the distress of 

* Generalization may at pleasure be carried still further: a landed estate 
may be considered as a vast machine for the production of grain, which is 
refitted and kept in repair by cultivation: or a flock of sheep as a machine 
for the raising of mutton or wool, 



28 ON PRODUCTION. book i. 

a capitalist, when his funds are unprofitable engaged or in a 
state of inactivity, is nothing to that of an industrious popula- 
tion deprived of the means of subsistence. 

Inasmuch as machinery produces that evil, it is clearly ob- 
jectionable. But there are circumstances that commonly ac- 
company its introduction, and wonderfully reduce the mis- 
chiefs, while at the same time they give full play to the bene- 
fits of the innovation. For, 

1. New machines are slowly constructed, and still more 
slowly brought into use; so as to give time for those who are 
interested, to take their measures, and for the public adminis- 
tration to provide a remedy.* 

3. Machines can not be constructed without considerable la- 
bour, which gives occupation to the hands they throw out of 
employ. For instance, the supply of a city with water by con- 
duits gives increased occupation to carpenters, masons, smiths, 
paviours, &c. in the construction of the works, the laying down 
the main and branch pipes^ &c. &c. 

3. The condition of consumers at large, and consequently, 
amongst them of the class of labourers affected by the inno- 
vation, is improved b}^ the reduced value of the product that 
class was occupied upon. 

Besides it would be vain to attempt to avoid the transient 
evil, consequential upon the invention of a new machine, by 
prohibiting its employment. If beneficial, it is or will be in- 
troduced somewhere or other; its products will be cheaper 
than those of labour conducted on the old principle; and soon- 
er or later that cheapness will run away with the consumption 
and demand. Had the cotton spinners on the old principle, 
who destroyed the spinning-jennies on their introduction into 
Normandy, in 1789; succeeded in their object, France must 
have abandoned the cotton manufacture; every body would 
have bought the foreign article, or used some substitute; and 
the spinners of Normandy, who in the end, most of them found 
employment in the new establishments, would have been yet 
worse off for employment. 

So much for the immediate effect of the introduction of ma- 
chinery. The ultimate effect is wholly in its favour. 

Indeed, if by its means man makes a conquest of nature, 
and compels the powers of nature and the properties of natural 
agents to work for his use and advantage, the gain is too ob- 
vious to need illustration. There must always be an increase 

* Witliout having recourse to local or temporary restrictions on the use of 
new methods or machinery, which are invasions of the property of the in- 
ventors or fabricators, a benevolent administration can make provision for the 
employment of supplanted or inactive labour in the construction of works of 
public utility at the public expense, as of canals, roads, churches, or the 
like; in extended colonization; in the transfer of population from one spot 
to another. Employment is the more readily found for the hands thrown 
out of work by machinery, because they are commonly already inured to la- 
bour. 



CHAP vir. ON PRODUCTION. 29 

of product, or a diminution in the cost of production. If the 
sale-price of a product do not fall, the acquisition redounds to 
the profit of the producer; and that without any loss to the con- 
sumer. If it do fall, the consumer is benefited to the whole 
amount of the fall without any loss to the producer. 

The multiplication of a product commonly reduces its price, 
that reduction extends its consumption; and so its production, 
though become more rapid, nevertheless gives employment to 
more hands than before. It is beyond question, that the manu- 
facture of cotton now occupies more hands in England, France, 
and Germany, than it did before the introduction of the ma- 
chinery that has abridged and perfected this branch of manu- 
facture in so remarkable a degree. 

Another striking example of a similar effect is presented by 
the machine used to multiply with rapidity the copies of a lite- 
rary performance, — I mean the printing-press. 

Setting aside all consideration ofthe prodigious impulse given 
by the art of printing to the progress of human knowledge and 
civilization, I will speak of it merely as a manufacture, and in 
an economical point of view. When printing was first brought 
into use, a multitude of copyists were of course immediately 
deprived of occupation; for it may be fairly reckoned, that 
one journeyman printer does the business of two hundred 
copyists. We may, therefore, conclude, that 199 out of 200 
were thrown out of work. What followed? Why, in a little 
time, the greater facility of reading printed than written books, 
the low price to which books fell, the stimulus this invention 
gave to authorship, whether devoted to amusement or instruc- 
tion, the combination, in short, of all these causes, operated so 
effectually as to set at work, in a very little time, more jour- 
neymen printers than there were formerly copyists. And if 
we could now calculate with precision, besides the number of 
journeymen printers, the total number of other industrious 
people, that the press finds occupation for, whether as type- 
founders and moulders, paper-makers, carriers, compositors, 
bookbinders, or booksellers, and the like, we should probably 
find, that the number of persons occupied in the manufacture 
of books is now 100 times what it was before the art of print- 
ing was invented. 

It may be allowable to add, that viewing human labour and 
machinery in the aggregate, in the supposition of the extreme 
case, viz. that machinery should be brought to supersede hu- 
man labour altogether, yet the numbers of mankind would not 
be thinned, for the sum total of products would be the same, 
and there would probably be less suffering to the poorer and 
labouring classes to be apprehended; for in that case the mo- 
mentary fluctuations, that distress the different branches of in- 
dustry, would principally affect machinery, which, and not 
human labour, would be paralysed; and machinery can not die 
of hunger; it can only cease to yield profit to its employers. 



30 ON PRODUCTION. book i. 

who are generally farther removed from want than mere la- 
bourers. 

But however great may be the advantages, which the ad- 
venturers in industry, and even the operative classes, may ulti- 
mately derive from the employment of improved machinery, 
the great gain accrues to the consumers, which is always the 
most important class, because it is the most numerous; because 
it comprehends every description of producers whatever; and 
because the welfare of this class, wherein all others are com- 
prised, constitutes the general wellbeing and prosperity of a 
nation.* I repeat, that it is the consumers who draw the great- 
est benetit from machinery; for, though the inventor may in- 
deed for some years enjoy the exclusive advantage of his in- 
vention, which it is highly just and proper he should, yet there 
is no instance of a secret remaining long undivulged. Nothing 
can long escape publicity, least of all what people have a per- 
sonal interest in discovering, especially if the secret be neces- 
sarily confided to the discretion of a number of persons em- 
ployed in constructing or in working the machine. The pro- 
duct is thenceforward cheapened by competition to the full ex- 
tent of the saving in the costs of production; and thencefor- 
ward begins the full advantage to the consumer. The grinding 
of corn is probably not more profitable to the miller now than 
formerly; but it costs infinitely less to the consumer. 

Nor is cheapness the sole benefit, that the consumer reaps 
from the introduction of more expeditious processes: he gene- 
rally gains in addition the greater perfection of the product. 
Painters could undoubtedly execute with the brush or pencil 
the designs that ornament our printed calicos and furniture 
papers, but the copperplates and rollers employed for that 
purpose give a regularity of pattern, and uniformity of colour, 
which the most skilful artist could never equal. 

The close pursuit of this inquiry through all the arts of in- 
dustry would show, that the advantage of machinery is not 
limited to the bare substitution of it for human labour, but that, 
in fact, it gives a positive new product, inasmuch as it gives a 
degree of perfection before unknown. The flatting-mill and 
the die execute products, that the utmost skill and attention of 
the human hand could never accomplish. 

In fine, machinery does still more; it multiplies products, 
with which it has no immediate connexion. Without taking 
the trouble to reflect, one perhaps would scarcely imagine that 
the plough, the harrow, and other similar machines, whose 
origin is lost in the night of ages, have powerfully contributed 
to procure for mankind, besides the absolute necessaries of life, 
a vast number of the superfluities they now enjoy, whereof 

* Paradoxical as it may appear, it is nevertheless true, that the labouring 
class is of all others the most interested in promoting the economy of human 
labour; for that is the class which benefits the most by the general cheap^ 
ness, and suffers the most from the general dearness of commodities. 



CHAP. VII. ON PRODUCTION. 31 

they would otherwise never have had any conception. Yet, 
if the different dressings the soil requires could be no otherwise 
sjiven, than by the spade, the hoe, and other such simple and 
tardy expedients, if we were unable to make available in agri- 
cultural production those domestic animals, that, in the eye of 
political economy, are but a kind of machines, it is most likely 
that the whole mass of human labour, now applicable to the 
arts of industry, would be occupied in raising the bare neces- 
sary subsistence of the actual population. Thus, the plough 
has been instrumental in releasing a number of hands for the 
prosecution of the arts even of the most frivolous kind; and, 
what is of more importance, for the cultivation of the intellec- 
tual faculties. 

The ancients were unacquainted with water or wind-mills. 
In their time, the wheat their bread was made of, was pounded 
by the labour of the hand: so that perhaps no less than twenty 
individuals were occupied in pounding as much wheat as one 
mill can grind. * Now a single miller, or two at the most, is 
enough to feed and superintend a mill. By the aid, then, of 
this ingenious piece of mechanism, two persons are as pro- 
ductive as twenty were in the days of Caesar. Wherefore, in 
every one of our mills, we make the wind, or a current of wa- 
ter, do the work of eighteen persons; which eighteen extra 
Eersons are just as well provided with subsistence; for the mill 
as in no respect diminished the general produce of the com- 
munity; and whose exertions may be directed to the creation 
of new products, to be given by them in exchange for the pro- 
duce of the mill; thereby augmenting the general wealth of 
the community, t 

* Homer tells us, in the Odyssey, b. xx., that twelve women wei-e daily 
employed in grinding corn for the family consumption of Ulysses, whose 
establishment is not represented as larger than that of a private gentleman 
of fortune of modern days. 

f Since the publication of the third edition of this work, M. de Sismondi 
has published liis Nouvtaux Principes d'Economie Politique, This valuable 
writer seems to have been impressed with an exaggerated notion of the 
transient evils, and a faint one of the permanent benefits of machinery, and 
to be utterly unacquainted with those principles of the science, which place 
those benefits beyond controversy, (a) 



(a) Our author, in his recent argument with Malthus, upon the subject 
of the excess of manufacturing power and produce, appears to me to have 
completely vindicated his own positions against the attacks of Sismondi and 
Malthus; and to have exposed the fallacy of the appalling doctrine, that 
the powers of human industry can ever be too great and too productive. 
Vide Lettres a M. Malthus. 



32 ON PRODUCTION. book. i. 



CHAPTER VIII. 



OP THE ADVANTAGES AND DISADVANTAGES RESULTING FROM 
DIVISION OP LABOUR, AND OP THE EXTENT TO WHICH IT 
MAY BE CARRIED. 

We have alread)^ observed, that the several operations, the 
combination of which forms but one branch of industry, are 
not in general undertaken or performed by the same person; 
for they commonly require different kinds of talent; and the 
labour requisite to each is enough to take up a man's whole 
time and attention. Nay, in some instances, a single one of 
these operations is split again into smaller subdivisions, each 
of them sufficient for one person's exclusive occupation. 

Thus, the study of nature is shared amongst the chemist, 
the botanist, the astronomer, and many other classes of stu- 
dents in philosophy. 

Thus, too, in the application of human knowledge to the 
satisfaction of human wants, in manufacturing industry, for in- 
stance, we find different classes of manufacturers employed 
exclusively in the fabric of woollens, pottery, furniture, cot- 
tons, &c. &c. 

Finally, in the executive part of each of the three branches 
of industry, there are often as many different classes of work- 
men as there are different kinds of work. To make the cloth 
of a coat, there must have been set to work the several classes 
of spinners, weavers, dressers, shearers, dyers, and many other 
classes of labourers, each of whom is constantly and exclusive- 
ly occupied upon one operation. 

The celebrated Adam Smith was the first to point out the 
immense increase of production, and the superior perfection 
of products referable to this division of labour.* He has cited, 

* Beccaria, in a public course of lectures on political economy, delivered 
at Milan in the year 1769, and before the publication of Smith's work, had 
remarked the favourable influence of the division of labour upon the mul- 
tiplication of products. These are his words: " Ciascuno prova coll' es- 
perienza, che, applicando la mano e I'ingegne sempre alio stesso genere di 
opere e di prodotti, egli piu facili, piu ahondanti e migliori ne trova i resultati, 
di quello, che se ciascuno isolatamenie le cose tutte a se necessarie soltanto 
facense: onde altri pascono le pecore, attri ne cardano le lane, altri le tessono: 
chi coltiva Made, chi ne fa il pane,- chi veste, ctii fah'ica agli agricoltorie la- 
voranti; crescendo e concatenandosi le arti, e dividendosi in tal maniera, per la 
comune e privata uiilitd gli nomini in varie classi e condizioni." We all 
know, by personal experience, that, by the continual application of the cor- 
poreal and intellectual faculties to one peculiar kind of work or product, 
we can obtain the product with more ease, and in greater abundance and 



CHAP. viir. ON PRODUCTION. 33 

among other examples, the manufacture of pins. The work- 
men occupied in this manufacture execute each but one part 
of a pin. One draws the wire, another cuts it, a third sharpens 
the points. The head of the pin alone requires two or three 
distinct operations, each performed by a different individual. 
By means of this division, an ill-appointed establishment, with 
but ten labourers employed, could make 48,000 pins per day, 
by Smith's account. Whereas, if each person were obliged 
to finish off the pins one by one, going through every opera- 
tion successively from first to last, each would probably make 
but 20 per day, and the ten workmen would produce in the 
whole but 200, in lieu 48,000. 

Smith attributes this prodigious difference to three causes: 
1. The improved dexterity, corporeal and intellectual, ac- 
quired by frequent repetition of one simple operation. In 
some fabrics the rapidity with which some of the operations 
are performed exceeds what the human hand could, by those 
who had never seen them, be supposed capable of acquiring. 

perfection, than if each were to depend upon his own exertions for all the 
objects of his wants. For this reason, one man feeds sheep, a second cards 
the wool, and a third weaves it: one man cultivates wheat, another makes 
bread, another makes clothing or lodging for the cultivators and mechanics: 
this multiplication and concatenation of the arts, and division of mankind 
into a variety of classes and conditions, operating to promote both public 
and private welfare." 

However, I have given Smith the credit of originality In his ideas of the 
division of labour; first, because, in all probability, he had published his 
opinions from his chair of professor of philosophy at Glasgow before Bec- 
caria, as it is well known he did the principles that form the ground-work 
of his book; but chiefly because he has the merit of having deduced from 
them the most important conclusions. (1) 



(1) {Ml tlie fundamental doctrines contained in the Inquiry into the 
Wealth of Nations, were comprehended in Dr. Smith's course of political 
lectures, delivered at Glasg-ow as early as the year 1752; " at a period, sure- 
1}'," says Dtjgait) Stewart, " when there existed no French, (and he 
might have added, or Italian) performance on the subject, that could be of 
much use to him in guiding his researches." A short manuscript, drawn 
up by Dr. Smith in the year 1755, fully establishes his exclusive ckim to 
the most Important opinions detailed in his treatise on the Wealth of Na- 
tions, which did not appear until the beginning of the year 1776. " A great 
part of the opinions enumerated in this paper, (he observes,) is treated of 
at length in some lectures which I have still by me, (1755), and which were 
written in the hand of a clerk who left my service six years ago. They 
have all of them been the constant subject of my lectures, since I first 
taught Mr. Craigie's class, the first winter I spent in Glasgow, down to this 
day, without any considerable variation. They had all of them been the 
subject of lectures which I read at Edinburgh the winter before I left it, 
and I can adduce innumerable witnesses, both from that place and from this, 
who will ascertain them sufficiently to be mine." Vide Mr. Stewart's Ac- 
count of the Life and Writings of Adam Smith, LL.D. read before the 
Royal Society of Edinburgh, January 21, and March 18, 1793.] 

American Editok. 

13 



!34 ON PRODUCTION. book i. 

2. The saving of the time which is commonly lost in passing 
from one species of work to another, and in the change of 
place, position, and tools. The attention, which is always 
slowly transferred, has no occasion to transport itself and set- 
tle upon a new object. 

3. The invention of a great number of machines, which fa- 
cilitate and abridge labour in all its departments. For the 
division of labour naturally limits each operation to an ex- 
tremely simple task, and one that is incessantly repeated; 
which is precisely what machinery may most easily be made 
to perform. 

Besides, men soonest discover the methods of arriving at a 
particular end, when the end is approximate, and their atten- 
tion exclusively directed to it. Discoveries, even in the walk 
of philosophy, are for the most part referable, in their origin, 
to the subdivision of labour, because it is this subdivision that 
enables men to devote themselves to the exclusive pursuit of 
one branch of knowledge; which exclusive devotion has won- 
derfully favoured their advancement.* 

Thus the knowledge or theory necessary to the advance- 
ynent of commercial industry for instance, attains a far greater 
degree of perfection, when different persons engage in the 
several studies, one of geography, with the view of ascertaining 
the respective position and products of different countries; 
another of politics, with a view to inform himself of their na- 
tional laws and manners, and the advantages and disadvan- 
tages of commercial intercourse with them; a third of geome- 
try and mechanics, by way of determining the preferable form 
of the ships, carriages, and machinery of all kinds, that must be 
employed; a fourth of astronomy and natural philosophy, for 
the purposes of navigation, &c. &c. 

Thus, too, the application of knowledge in the same depart- 
ment of commercial industry will obviously arrive at a higher 
degree of perfection, when divided amongst the several branches 
of internal, Mediterranean, East and West Indian, American, 
wholesale and retail, &c. &c. 

Moreover, such a division is no obstacle to the combination 
of operations not altogether incompatible, more especially if 
they aid and assist each other. There is no occasion for two 
different merchants to conduct, one the trade of import for 
home consumption, and the other the trade of export of home 



* But thoug'h many important discoveries in the arts have originated in 
division of labour, we must not refer to that source the actual products 
that have resulted, and will to eternit}' result, from those discoveries. — 
The increased product must flow from the productive power of natural 
agents, no matter what may have been the occasion of our first becoming 
acquainted with the means of employing those agents, f'lde supra, Chap. 
IV. 



CHAP. VIII. ON PRODUCTION. 35 

products; because these operations far from clashing, mutually 
facilitate and assist each other, (a) 

The division of labour cheapens products, by raising a great- 
er quantity at the same or a less charge of production. Com- 
petition soon obliges the producer to lower the price to the 
whole amount of the saving effected; so that he derives much 
less benefit than the- consumer; and every obstacle the latter 
throws in the way of that division is an injury to himself. 

Should a tailor try to make his own shoes as well as his 
coat, he would infallibly ruin himself. * We see every day 
people acting as their own merchants, to avoid paying a regu- 
lar trader the ordinary profit of his business; to use their own 
expression, with the view of pocketing that profit themselves. 
■But this is an erroneous calculation; for this division of labour 
enables the regular dealer to execute the business for them- 
much cheaper than they can do it themselves. Let them 
reckon up the trouble it costs them, the loss of time, the money 
thrown away in extra charges, which is always proportionally 
more in small than in large operations, and see if all these to- 
gether do not amount to more than the twa or three per cent, 
that might be saved on every paltry item of consumption; even 
supposing them not to be deprived of what little advantage 
they might expect, by the avarice of the cultivator or manu- 
facturer they would have to deal directly with, who will, of 
course impose, if he can, upon their inexperience. 

It is no advantage even to the cultivator or manufacturer 
himself, except under very particular circumstances, to intrude 
upon the province of the merchant, and endeavour to deal 
directly with the consumer without his intervention. He would 
only divert his attention from his ordinary occupation, and 
lose time that might be far better employed in his own peculiar 
line; besides being under the necessity of keeping up an es- 
tablishment of people, horses, carriages, &c. the expenses of 
which would far exceed the merchant's profit, reduced as it 
always must be by competition. 

* The low price of sugar in China, is probably occasioned, in part, by the 
circumstance of the grower leaving to a separate class the extraction of 
the sugar from the cane. This operation is performed by itinerant sugar 
pressers, who go from house to house, offering their services, and provided 
with an extremely simple apparatus. Vide Macai'tney's Embassy, vol. iv. 
p. 198. 



(^a_) The combination of operations, which, at first sight, appears to be 
distinct, is far more practicable in what our author calls the branch of ap- 
plication, than in either the theoretical or the executive branch. A gene- 
ral merchant, by means of clerks and brokers, vi'ill combine a vast variety 
of different commei'cial operations, and yet prosper. Why? Because his 
own peculiar task is that of superintendence of commercial dealings; which 
superintendence may be extended over a greater surface of dealing with- 
out incongruity, being on a closer inspection, bu^t a repetition of the same 
operatiyn. T- 



36 ON PRODUCTION. book i. 

The advantages accruing from division of labour can be en- 
joyed in respect of particular kinds of products only; and not 
in them, until their consumption has exceeded a certain point 
of extension. Ten workmen can make 48,000 pins in a day; 
but would hardly do so, unless where there was a daily con- 
sumption of pins to that amount; for, to arrive at this degree 
of division of labour, one workman must be wholly and exclu- 
sively occupied in sharpening the points, while the rest are 
severally engaged, each in a different part of the process. If 
there be a daily demand for no more than 24,000, he must needs 
lose half his day's work, or change his occupation; in which 
case, the division of labour will be less extensive and complete. 

For this reason, division of labour can not be carried to the 
extreme limit, except in products capable of distant transport 
and the consequent increase of consumption; or where manu- 
facture is carried on amidst a dense population, offering an 
extensive local consumption. For the same reason too, many 
kinds of work, the products of which are destined to instanta- 
neous consumption, are executed by the same individual, in 
places where the population is limited. In a small town or 
village, the same person is often barber, surgeon, doctor, and 
apothecary; while in a populous city, and there only, these are 
not merely separate and distinct occupations, but some of them 
are again subdivided into several branches; that of the surgeon^ 
for instance, is split into the several occupations of dentist, 
oculist, accoucheur, &c.; each of which practitioners, by con- 
fining his practice to a single branch of this extensive art, ac- 
quires a degree of skill, which, but for this division, he could 
never attain. 

The same circumstance applies equally to commercial indus- 
try. Take the village grocer; the consumption of his groceries 
is so limited, as to oblige him to be at the same time haber- 
dasher, stationer, innkeeper, and God knows what, perhaps 
even news-writer and publisher; whereas in large cities, not 
only grocery at large, but even the sale of a single article of 
grocery, is a great commercial concern. At Paris, London, 
and Amsterdam, there are shops, where nothing else is sold 
but the single article tea, oil, or vinegar; and it is natural to 
suppose, that such shops have a much better assortment of the 
single article, than those dealing in many different commodi- 
ties at once. Thus, in a rich and populous country, the carrier, 
the wholesale, the intermediate, and the retail dealer conduct 
each a separate branch of commercial industry, and conduct 
it with greater perfection as well as greater economy. Yet 
they all benefit by this economy; and that they do so, if the 
explanations already given are not convincing, experience 
bears irrefragable testimony; for consumers always buy cheap- 
est, where commercial industry is the most subdivided. Cete- 
ris paribus, a commodity brought from the same distance is 
sold cheaper at a large town or fair, than in a village or hamlet. 

The limited consumption of hamlets and villages, besides 



CHAP. vm. ON PRODUCTION. 37 

obliging dealers to combine many elsewhere distinct occupa- 
tions, prevents many articles from finding a regular sale at 
all seasons. Some are not presented for sale at all, ex- 
cept on market or fair days; on such days the whole week's 
or perhaps year's consumption is laid in. On all other days, 
the dealer either travels elsewhere with his wares, or finds 
some other kind of occupation. In a very rich and very 
populous district, the consumption is so great, as to make the 
sale of one article only quite as much as a trader can manage, 
though he devote every day in the week to the business. 
Fairs and markets are expedients of an early stage of national 
prosperity; the trade by caravans of a still earlier stage of in- 
ter-national commerce; but even these expedients are far bet- 
ter than none at all.* 

From the necessity of the existence of a very extended con- 
sumption, before division of labour can be carried to its ex- 
treme point, it follows, that such division can never be intro- 
duced in the manufacture of products, which, from their high 
price, are placed within reach of few purchasers. In jewel- 
lery, especially of the better kinds, it is practised in a very 
limited degree; and such division being, as we have seen, one 
cause of the invention and application of ingenious processes, 
it is not surprising that such processes are least often met with 
in the preparation of products of highly finished workmanship. 
In visiting the workshop of a lapidary, one is often dazzled 
with the costliness of the materials, and the skill and patience 
of the workman; but it is only in the grand manufactories of 
articles of universal consumption, that one is astonished with 
the display of ingenuity employed to give additional expedi- 
tion and perfection to the product. In looking at an article of 
jewellery, it is easy to form an idea of the tools and processes, 
by means of which it has been executed; whereas few people, 
on viewing a common stay-lace, would suppose it had been 
made by a horse or a current of water, which is actually the 
case. 

* The country markets of France not only exliibit extreme inertness in 
particular channels of consumption; but a very cursory observation is suffi- 
cient to show, that the sale of products in them is very limited, and the 
quality of what are sold very inferior. Besides the local products of the 
district, one sees nothing there, except a few tools, woollens, linens, and 
cottons of the most inferior quality. In a more advanced stage of prospe- 
rity, one would find some few objects of gratification of wants peculiar to a 
more refined state of existence: some articles of furniture combining con- 
venience and elegance of form; woollens of some variety of fineness and 
pattern; articles of food of a more expensive kind, whether on account of 
their preparation or tlie distance they may have been brought from; a few 
works of instruction or tasteful amusement; a few books besides mere 
almanacks and prayer books. In a still more advanced stage, the consump- 
tion of all these things would be constant and extensive enough to support 
regular and well stocked shops in all these different lines. Of this degree 
of wealth examples are to be found in Europe, particularly in parts of 
England, Holland, and Germany. 



38 ON PRODUCTION. book i. 

Of the three branches of industry, agriculture is the one that 
admits division of labour in the least degree. It is impossible 
to collect an}'^ great number of cultivators on the same spot, to 
use their joint eJiertions in the raising of one and the same 
product. The soil they work upon is extended over the whole 
surface of the globe, and obliges them to work at considerable 
distance from each other. Besides, agriculture does not allow 
of one person being continually employed in the same opera- 
tion. One man can not be all the year ploughing or digging, any 
more than another can find constant occupation in gathering 
in the crop. Moreover, it is very rarely that the whole of one's 
land can be devoted to the same kind of cultivation, or that 
the same kind of cultivation can be continued upon any one 
spot for many successive years. The land would be exhaust- 
ed; and, supposing the cultivation of the whole property to be 
uniform, yet even then, the preparing and dressingof the whole 
ground, and the getting in of the whole of the crops, would 
come on at the same time, and the labourers be unoccupied at 
other periods of the year.* 

Moreover the nature of his occupation and of agricultural 
products makes it highly convenient for the cultivator to raise 
nis own vegetables, fruil, and cattle, and even to manufacture 
part of the tools and utensils employed in his house-keeping; 
though in the other channels of industry, these items of con- 
sumption give exclusive occupation to a number of distinct 
classes. 

Where concerns of industry are carried on in manufactories, 
in which one and the same master-manufacturer conducts the 
product through all its stages, he can never establish any great 
subdivision of the various operations, without great command 
of capital. For such division requires larger advances of wa- 
ges, of raw materials, and of tools and implements. Where 
eighteen workmen manufacture but twenty pins each per day, 
that is to say, in all 360 pins, weighing scarcely an ounce of 
metal, the daily advance of an ounce of fresh metal is enough 
to keep them in regular work. But if, in consequence of di- 
vision of labour, these same eighteen persons can be brought, 
as we know they can, to produce 86,400 pins, the daily supply 

* It is not common to meet with such large concerns in agriculture, as in 
the branches of commerce and manufacture. Afarmer or proprietor seldom 
undertakes more than fom- or five hundred acres, and his concern, in point 
of capital and amount of produce, does not exceed that of a middling trades- 
man or manufacturer. This difference is attributable to many concurrent 
causes; chiefly to the extensive area this branch of industry requires; to 
the bulky nature of the produce, and consequent difficidtj- of collecting 
it at one point from the distant pai'ts of the farm, or sending it to very re- 
mote markets; to the nature of the business itself, which is not susceptible 
of any regular and uniform system, and requires in the adventurer a suc- 
cession of temporaiy expedients and directions, suggested by the difference 
of culture, of manuring and dressings, and the variety of each labourer's 
occupations, according to the season, the change of weather, &c- 



CHAP. viir. ON PRODUCTION. 39 

of raw material requisite for their regular employ will l)e 240 
ounces' weight of metal; consequently a much more considera- 
ble advance will be called for. If we further take into calcu- 
lation, that there is an interval of probably a month or more, 
from the purchase of the metal b)'^ the manufacturer to the pe- 
riod of his reimbursement by the sale of his pins, we shall find 
that he must necessarily have at all times on hand, in different 
stages of progressive manufacture, 30 times 240 ounces of 
metal; in other words, the portion of his capital vested in raw 
material alone will amount to the value of 450lbs. of metal. 
In addition to which, it must be observed, that the division of 
labour can not be effected without the aid of various imple- 
ments and machines, that form themselves an important item 
of capital. Thus, in poor countries, we frequently find a pro- 
duct carried through all its stages, from first to last, by one 
and tliQ same workman, from mere want of the capital requi- 
site for a judicious division of the different operations. 

We must not however suppose, that, to effect this division 
of labour, it is necessary the capital should be placed all in the 
hands of a single adventurer, or the business conducted all 
within the walls of one grand establishment. A pair of boots 
undergoes a variety of processes, whereof all are not executed 
by the bootmaker alone; the grazier, the tanner, the currier, 
all others, who immediately or remotely furnish any sub- 
stance, or tool used in the making of boots, contribute to the 
raising of the product; and though there is a very considerable 
subdivision of labour in the anaking of this article, the greater 
part of the joint and concurrent producers may have very lit- 
tle command of capital. 

Having detailed the advantages of the subdivision of the va- 
rious occupations of industry, and the extent to which it may 
be carried, the view of the subject would be incomplete, were 
we to omit noticing, on the other hand, the inconveniences 
that inseparably attend it. 

A man, whose whole life is devoted to the execution of a 
single operation, will most assuredly acquire the faculty of 
executing it better and quicker than others; but he will, at the 
same time, be rendered less fit for every other occupation, cor- 
poreal or intellectual; his other faculties will be gradually 
blunted or extinguished; and the man, as an individual, will 
degenerate in consequence. To have never done any thing 
but make the eighteenth part of a pin, is a sorr^^ account for a 
human being to give of his existence. Nor is it to be imagined 
that this degeneracy from the dignity of human nature is con- 
fined to the labourer, that plies all his life at the file or the 
hammer; men, whose professional duties call into play the 
finest faculties of the mind, are subject to similar degradation. 
This division of occupations has given rise to the profession of 
attornies, whose sole business it is to appear in the courts of 
justice instead of the principals, and to follow up the different 
steps of the process on their behalf. These legal practitioners 



40 ON PRODUCTION. book i. 

are, confessedly, seldom deficient in technical skill and ability; 
yet it is not uncommon to meet with men, even of eminence 
in this profession, wholly ignorant of the most simple processes 
of the manufactures they every day make use of; who, if they 
were set to work to mend the simplest article of their furniture, 
would scarcely know how to begin, and could probably not 
drive a nail, without exciting the risibility of every awkward 
carpenter's apprentice; and if placed in a situation of a greater 
emergency, called upon, for instance, to save a drowning 
friend, or to rescue a fellow townsman from a hostile attack, 
would be in a truly distressing perplexity; whereas a rough 
peasant, inhabiting a semi-barbarous district, would probably 
extricate himself from a similar situation with honour. 

With regard to the labouring class, the incapacity for any 
other than a single occupation renders the condition of mere 
labourers more hard and wearisome, as well as less profitable. 
They have less means of enforcing their own right to an equita- 
ble portion of the gross value of the product. The workman, 
that carries about with him the whole implements of his trade, 
can change his locality at pleasure, and earn his subsistence, 
wherever he pleases: in the other case he is a mere adjective, 
without individual capacity, independence, or substantive im- 
portance, when separated from his fellow labourers, and oblig- 
ed to accept whatever terms his employer thinks fit to impose. 

On the whole, we may conclude, that division of labour is a 
skilful mode of employing human agency, that it consequently 
multiplies the productions of society, in other words, the pow- 
ers and the enjoyments of mankind; but that it in some degree 
degrades the faculties of man in his individual capacity, (a)(1) 



(a) This consideration makes it peculiarly incumbent upon the govern- 
ment of a manufacturing- nation to diffuse the benefits of early education, 
and thus prevent the degeneration from being intellectual as well as cor- 
poreal. T. 



(1) [" The extensive propagation of light and refinement," says Dugald 
Stewart, " arising from the influence of the press, aided by the spirit of 
commerce, seems to be the remedy provided by nature, against the fatal 
effects which would otherwise be produced, by the subdivision of labour 
accompanying the progress of the mechanical arts: Nor is any thing want- 
ing to make the remedy effectual, but wise institutions to facilitate gene- 
ral instruction, and to adapt the education of individuals to the stations they 
are to occupy. The mind of the artist, which from the limited sphere of 
his activity, would sink below the level of the peasant or the savage, might 
receive in infancy the means of intellectual enjoyment and the seeds of mo- 
ral improvement; and even the insipid uniformity of his professional en- 
gagements, by presenting no object to awaken his ingenuity or to distract 
his attention, might leave him at liberty to employ his faculties on subjects 
more interesting to himself, and more extensively useful to others."] 

Ameiucan Editoe. 



CHAP. IX. ON PRODUCTION. 41 



CHAPTER IX. 

OP THE DIFFERENT METHODS OF EMPLOYING COMMERCIAL 
INDUSTRY, AND THE MODE IN WHICH THEY CONCUR IN 
PRODUCTION. 

Commodities are not all to be bad in all places indifferently. 
The immediate products of the earth depend upon the local 
varieties of soil and climate; and even the products of indus- 
try are met with only in such places as are most favourable 
to their production. 

Whence it follows, that, where products, whether of indus- 
try or of the earth, do not grow naturally, they can not be in- 
troduced or produced in a perfect state, and fit for consump- 
tion, without undergoing a certain modification; that is to say, 
that of transport or conveyance. 

This transfer gives occupation to what has been called 
commercial industry. 

External commerce consists of the supply of the home mar- 
ket with foreign, and of foreign markets with home products.* 

Internal commerce consists of the buying and re-selling of 
home products in the home markets. 

Wholesale commerce is the buying of large quantities, and 
re-selling to inferior dealers. 

Retail commerce is the buying of wholesale dealers, and 
re-selling to consumers. 

The commerce of money or specie is conducted by the 
banker, who receives or pays on account of other people, or 
gives bills, orders, or letters of credit, payable elsewhere than 
at the place where they are given. This is sometimes called 
the banking trade.fbj 

The broker brings buyers and sellers together. 

The persons engaged in these several branches are all 
agents of commercial industry, whose agency tends to approxi- 

* Products that are bought to be re-sold, are called merchandise; and 
merchandise bought for consumption is denominated cotnmodities. faj 



C^J This distinction has been discarded in the translation, for the sake 
of simplification; the genei'al term products being sulRciently intelligible 
and specific. T. 



CbJ The banker's business is not confined to dealings in metal, coined or 
uncoined, but is extended to dealings in paper-money, and dealings in cre- 
dit, as we shall see when we come to the chapter upon money, infra. T, 
13 ■ 



42 ON PRODUCTION. book i. 

mate products to the hands of the ultimate consumer. ^ The 
agency of the retailer of an ounce of pepper is quite as indis- 
pensable to the consumer, as that of the merchant, who dis- 
patches his vessel to the Moluccas for a cargo; and the only 
reason why these different functions are not both performed by 
one and the same individual is, because they can be exe- 
cuted with more economy and convenience by two. To enter 
minutely into an examination of the limits and practices of 
these various departments of commercial industry, would be 
to write a treatise on commerce.* All we have to do in this 
work is, to inquire in what manner and degree they influence 
the production of values. 

In Book II., we shall see how the actual demand for a pro- 
duct, originating in its utility, is limited by the amount oi the 
costs of production, and upon what principle its relative value 
is determined in each particular place. At present it is suffi- 
cient for the clear conception of commercial matters, to consi- 
der the value of a product as a given quantity or datura. 
Thus, without examining the reason why oil of olives is worth 
at Marseilles thirty, and at Paris forty sous per lb. I shall con- 
tent myself with simply stating, that whoever effects the trans- 
port of that article from Marseilles to Paris, thereby increases 
its value to the amount of ten sous per lb. Nor is it to be sup- 
posed, that its intrinsic value has received no accession by the 
transit. That value has positively augmented. The intrinsic 
value of silver is greater at Paris than at Lima; and the cases 
are precisely similar. 

In fact, the transport of products can not be effected without 
the concurrence of a variety of means, which have each an 
intrinsic value of their own, and of which the actual transport 
itself, in the literal and confined sense of the term, is common- 
ly not the most chargeable. There must be one commer- 
cial establishment at the place where the products are col- 
lected; another at the place it is transported to; besides 
package and warehousing. There must be an advance of 
capital equivalent to the value transported. Moreover, there 
are agents, insurers, and brokers, to be paid. All these are 
really productive occupations, since, without their agenc}^, the 
consumer can never enjoy the product; and supposing their 
remuneration to be reduced by competition to the lowest rate 
possible, he can be in no way cheaper supplied. 

In commercial, as well as manufacturing industry, the disco- 
very of a more economical or more expeditious process, the 
more skilful employment of natural agents, the substitution, 
for instance, of a canal in place of a road, or the removal of a 
difficulty interposed by nature or by human institutions, re- 
duces the cost of production, and procures a gain to the con- 

* A complete treatise on commerce is still a desideratum in literature, 
notwithstanding the labours of Melon and Forbonnais, for hitherto the 
principles and consequences of commerce have been little understood. 



CHAP. IX. ON PRODUCTION. 43 

sumer, without any consequent loss to the producer, who can 
lower his price without prejudice to himself, because his own 
outlay and advance are likewise reduced. 

The same principles govern both external and internal com- 
merce. The merchant that exports silks to Germany or to 
Russia, and sells at Petersburgh for 8 Jr. per yard, stuffs that 
have cost but ^ fr. at Lyons, creates a value oi'i fr. per yard. 
If the same merchant brings a return cargo of peltry from 
Russia, and sells at Havre for 1200 ^r, what cost him at Riga 
but 1000 yr., or a value equivalent to 1000 /r. there will be a 
new value of 200 fr. created and shared amongst the different 
agents engaged in this production of value, whatever nation 
they may belong to, and whatever be the relative importance 
of their respective productive agency, from the first rate mer- 
chant to the ticket-porter inclusive.* And, by this creation of 
value, the wealth of the French nation is enriched to the 
amount of all the gains of French industry and of French capi- 
tal, in the course of this production: and the Russian nation 
to the amount of those of Russian industry and Russian capital. 
Nay, perhaps a third nation, independent both of France and 
of Russia, may get the whole profit accruing from the mutual 
commercial intercourse between these nations; and yet neither 
of them lose any thing, if their industry and capital have 
other equally lucrative employments at home. The very cir- 
cumstance of the existence of an active external commerce, no 
matter what agents it be conducted by, is a very powerful 
stimulus to internal industry. The Chinese, who abandon the 
whole of their external commerce to other nations, must never- 
theless raise an enormous gross product, otherwise they, could 
never support, as they do, a population twice as large as that 
of all Europe, upon a surface of nearly equal extent. A shop- 
keeper in good business is quite as well off as a pedlar that 
travels the country with his wares on his back.t Commercial 
jealousy is, after all, nothing but prejudice: it is a wild fruit, 
that will drop of itself when it has arrived at maturity. 

The external commerce of all countries is inconsiderable, 
compared with the internal. To convince ourselves of the 
truth of this position, it will be sufficient to take note at all 
numerous or even sumptuous entertainments, how very small 
is the proportion of values of foreign growth, in comparison 
with those of home production; especially, if we take into the 

* The ovdinary proportions of this division will be explained, mfrd, Book 
II. Chap. 7. 

•j- It has been often asked, Why not combine commercial with agricultu- 
ral and manufacturing productions? Why, for the same reason, that makes 
a wholesale cotton spinner, if he have a surplus of time and capital, more 
apt to extend his spinning- concern, than to employ his labour and capital 
in the working up of his own filature into muslin and printed calicos. 



44 ON PRODUCTION. book i. 

account, as we ought to do, the value of buildings and habita- 
tions, which is necessarily of home production. *(^a7 

The internal commerce of a country, though, from its mi- 
nute ramification, it is less obvious and striking, besides being 
the most considerable, is likewise the most advantageous.(i) 
For both the remittances and returns of this commerce are 
necessarily home products. It sets in motion a double pro- 
duction, and the profits of it are not participated with foreigners. 
For this reason, roads, canals, bridges, the abolition of internal 
duties (bj, tolls, duties on transit (c), which are in effect 
tolls, every measure, in short, which promotes internal circu- 
lation, is favourable to national wealth. 

There is a further branch of commerce, called the trade of 
speculation,which consists in the purchase of goods at one time, 
to be re-sold in the same place and condition at another time, 
when they are expected to be dearer. Even this trade is pro- 

• It would be impossible to estimate the proportion with any tolerable 
accurac}^ even in countries, where calculations of this kind are most in 
vogue. Indeed, the attempt would be a sad waste of time. To say the 
truth, statistical statements are of little real utility; for, be their accuracy 
ever so well assured, they can only be correct for the moment. Tlie only 
knowledge really useful is, the knowledge of general principles and laws, 
that is to say, the knowledge of the connexion between cause and effect, 
which alone can safely teach us what measures it is best to adopt in every 
possible emergency. The sole use of statistics in political economy is, to 
supply examples and illustrations of general principles. They can never 
be the basis of principles, which are grounded upon the nature of things; 
whereas statistics, in the most improved state, are only an index of their 
quantity. 



fa J This position may be correct or not, according to circumstances. 
The national wants must always, in the long run, be supplied by the na- 
tional industry and exertions: but what is there to prevent a nation from 
exchanging the larger portion of its domestic products for tlie products of 
other nations? The people of Tyre probably consumed more products of 
external, than of domestic industry, although indeed those external must 
have been purchased witli domestic products. Tyre, it is true, was rather 
a city than a nation. Holland resembled her in many particulars. TJie 
observation applies to every community, the chief part of whose production 
is, the modification of external products. T. 

fbj Douanes. fcj Octrois. 



(1) [The author has here, in common with Dr. Smith, fallen into an error. 
Capital, whether employed in the home or foreign trade, is equally pro- 
ductive. If, for example, the home trade realized greater profits than 
foreign commerce, every cent of capital employed in the latter, woidd in 
a very little time, be withdrawn from so comparatively disadvantageous an 
investment. Capital will flow into the foreign, instead of the iiome trade, 
only because it will thereby yield a larger profit. The internal conmierce 
of a country can not therefore be said to be "the most advantageous."] 

Amekicak EuiTon. 



CHAP. IX. ON PRODUCTION. 45 

diictive; its utility consists in the employment of capital, ware- 
houses, care in the preservation, in short, human industry in 
the withdrawing from circulation a commodity depressed in 
value by temporary superabundance, and thereby reduced in 
price below the charges of production, so as to discourage its 
production, with the design and purpose of restoring it to cir- 
culation when it shall become more scarce, and when its price 
shall be raised above the natural price, the charges of produc- 
tion, so as to throw a loss upon the consumers. The evident 
operation of this kind of trade is, to transport commodities in 
respect of time, instead of locality. If it prove an unprofitable 
or losing concern, it is a sign that it was useless in the particular 
instance, and that the commodity was not redundant at the 
time of purchase, and scarce at the time of re-sale. This opera- 
tion has also been denominated, with much propriety, the 
trade of reserve, (^tty) Where it is directed to the buying up 
of the whole of an article, for the sake of exacting an exorbi- 
tant monopoly price, it is called /ore-stalling, which is happi- 
ly difficult, in proportion as the national commerce is exten- 
sive, and, consequently, the commodities in circulation both 
abundant and various. 

The carrying trade, as Smith calls it, consists in the pur- 
chase of goods in one foreign market for re-sale in another 
foreign market. This class of industry is beneficial not only to 
the merchant that practises it, but also to the two nations be- 
tween whom it is practised; and that for reasons which have 
been explained while treating of external commerce. The 
carrying trade is but little suited to nations possessed of small 
capital, whereof the whole is wanted to give activity to inter- 
nal industry, which is always entitled to the preference. The 
Dutch carry it on in ordinary times with advantage, because 
their population and capital are both redundant, fbj The 
French, in peace time, have carried on a lucrative carrying 
trade between the different ports of the Levant; because ad- 
venturers could procure advances of capital on better terms in 
France than in the Levant, and were perhaps less exposed to 
the oppression of the detestable government of that country. 
They have since been supplanted by other nations, whose 
possession of the carrying trade is so far from being an injury 
to the subjects of the Porte, that it actually keeps alive the 
little remainingindustry of its territories. Some governments, 



CaJ Commerce de reserve. There is no con'esponding term in Eng-Iish; it 
is intelligible enough. T. 

fbJ The carrying trade of Holland is now almost extinct. In fact, whether 
or no it be suited to a given nation at a given time, depends upon a great 
variety of circumstances. The advantage of the neutral character gave 
a very large proportion of it for some years to the Amei-ican Union, 
tliough notoriously deficient in capital for the purposes of internal cultiva- 
tion. T. 



46 , ON PRODUCTION. book i. 

less wise in this particular than the Turkish, have interdicted 
their carrying trade to foreign adventurers. If the native tra- 
ders can carry on the transport to greater profit than foreigners, 
there is no occasion to exclude the latter; and, if it can be 
conducted cheaper by foreigners, their exclusion is a voluntary 
sacrifice of the profit of employing them. An example will 
serve to elucidate this position. The freight of hemp from 
Riga to Havre costs a Dutch skipper, say 35 /r. per ton. It 
must be taken for granted, that no other but the Dutchman 
can carry it so cheap. He makes a tender to the French go- 
vernment, which is a consumer of Russian hemp, to provide 
tonnage at 40 /r. per ton, thereby obviously securing to him- 
self a profit of 5 Jr. per ton. Suppose then, that the French 
government, with a view to favour the national shipping, pre- 
fers to employ French tonnage, which can not be navigated for 
less than 50 /r. per ton, or 55 fr., allowing the same profit to 
the ship-owner — What is the consequence? The government 
will be out of pocket 15 fr. per ton, for the mere purpose of 
giving a profit of 5 fr, to the national ship owners. And, as 
none but the individuals of the nation contribute towards the 
national expenditure, this operation will have cost to one class 
of Frenchmen 15 fr., for the purpose of giving to another class 
of Frenchmen a profit of 5 fr. only. However the numbers 
may vary, the result must be similar; for there is but one fair 
way of stating the account. 

It is hardly necessary to caution the reader, that I have 
throughout been considering maritime industry solely in its 
relation to national wealth. Its influence upon national se- 
curity is another thing. The art of navigation is an expedient 
of war, as well as of commerce. The working of a vessel is a 
military manojuvre; and the nation containing the larger pro- 
portion of seamen, is, therefore, ceteris paribus, the more pow- 
erful in a military point of view; consequently, political and 
military considerations have always interfered with national 
views of commerce in matters of navigation; and England, in 
passing her celebrated Navigation Act, interdicting her car- 
rying trade to all vessels, the owners and at least three-fourths 
of the crews whereof were not British subjects, had in view, 
not so much the profits of the carrying trade, as the increase of 
her own military marine, and the diminution of that of the 
other powers, especially of Holland, which then enjoyed an 
immense carrying trade, and was the chief object of English 
jealousy. 

Nor can it be denied, that these views may actuate a wise 
national administration; assuming always, that it is an advan- 
tage to one nation to domineer over others. But these political 
dogmas are fast growing obsolete. Policy will some day or 
other be held to consist in coveting the pre-eminence of merit 
rather than of force. The love of domination never attains 
more than a factitious elevation, that is sure to make enemies 
of all its neighbours. It is this that engenders national debt. 



CHAP. X. ON PRODUCTION. 47 

interna] abuse, tyranny and revolution; while the sense of mu- 
tual interest begets international kindness, extends the sphere 
of useful intercourse, and leads to a prosperity, permanent, be- 
cause it is natural.(l) 



CHAPTER X. 

or THE TRANSFORMATIONS UNDERGONE BY CAPITAL IN THE 
PROGRESS OF PRODUCTION. 

We have seen above (Chap, iii.) of what the productive 
capital of a nation consists, and to what uses it is applicable. 
So much it was necessary to specify, in enumerating the vari- 
ous means of production. We now come to consider and exa- 



(1) [The operation of the British Navigation-acts, hke all other restrictive 
regulations, has been prejudicial to the growth of the national wealth, with- 
out, at the same time, having contributed, in any degree to the establish- 
ment of the naval preponderance of Great Britain. " If it can be made to ap- 
pear," says a highly distinguished political economist, " that the greater 
wealth which we should, in the absence of these laws, have possessed, 
would have supplied a revenue adequate to the maintenance of an equal 
number of seamen in the navy, it would follow that we are no gainers by 
these acts; and if it further appear that this additional revenue would have 
been equal to the maintenance of twice or three times as many seamen, it 
would he clear that we are losers by them. It is acknowledged by many of 
the advocates for these laws, that their tendency has not been to increase the 
national revenue, but in some degree the reverse. 

" Our naval preponderance," says, we believe, Mr. Horner, " rests on a 
ver}' different basis. Our national energy and wealth originate in our free- 
dom, and in that security of property which is its happy consequence. The 
number of our seamen in merchant shipping is owing to the spirit and capi- 
tal of our traders, and to our great extent of coast. The magnitude of our 
navy is due neither to navigation-acts, nor to colonial monopolies, but to 
the resources of an industrious country. 

" How different are the ideas sug-gested by such observations, from the 
narrow theories of those who trace our naval superiority to the operation of 
a few acts of Parliament! They remind us of the technical philosophy of the 
judge, who gravely ascribed the lamentable prevalence of duelling, not to 
the violence of human passions, but to a misapprehension of the law of the 
land! Besides, our naval greatness, as is well remarked by Dr. Smith, was 
conspicuous before our navigation laws were framed. It existed then, as it 
had done before, and has done since, in a degree commensurate with our 
commerce, and with the extent of our national prosperity. These circum- 
stances, and not navigation laws, will be found the regulators of naval power 
in all countries. They determined its extent among the Dutch, to whom, 
even in the season of their greatest strength, navigation laws were entirely 
unknown." Vide Edinburgh Review, vol. xiv. page 95.] 

American Editok. 



48 ON PRODUCTION. book i. 

mine, what becomes of capital in the progress of production, 
and how it is perpetuated and increased. 

To avoid fatiguing the reader with abstract speculation, I 
shall begin with giving examples, which I shall take from 
every day's experience and observation. The general prin- 
ciples will follow of themselves, and the reader will immedi- 
ately see their applicability to all other cases, which he may 
have occasion to pronounce a judgment upon. 

When the land-owner is himself the cultivator, he must 
possess a capital over and above the value of his land; that is 
to say, value to some amount or other consisting, in the first 
place, of clearance of the ground, together with works and 
erections thereon, which may at pleasure be looked upon as 
part of the value of the estate, but which are, nevertheless, 
the result of previous human exertion, and an accession to the 
original value of the land.* 

This portion of his capital is little subject to wear and tear; 
trifling occasional repairs will preserve it entire. If the culti- 
vator obtain from the annual produce wherewithal to effect 
these repairs, this item of capital is thereby preservable in per- 
petuity. 

Ploughs, and other farming implements and utensils, to- 
gether with the animals employed in tillage, form another item 
of the cultivator's capital, and an item of much quicker con- 
sumption, which, however, may in like manner be kept up 
and renovated, as occasion may require, at the expense of the 
annual produce of the concern, and thus be maintained at its 
full original amount. 

Finally, he must have stores of various kinds; seeds for his 
ground, provisions, fodder for his cattle, and food as well as 
money for his labourers' wages, &c.t Observe, that this branch 
of capital is totally decomposed once in the course of the year 
at least; and sometimes three or four times over. The money, 
grain, and provisions of every description, disappear alto- 
gether; but so it must necessarily be; and yet not an atom of 

* Arthur Young, in his Vietv of the Agriculture of France, makes no esti^ 
mate of this item of capital permanently vested in the land of France within 
its old limits; but merely reckons it to be less than the capital so vested in 
England, in the proportion of 36 livres tournois per English acre. So that, 
in the very moderate supposition, that half as much capital is vested in per- 
manent amelioration of the land in France as in England, the capital so vest- 
ed in Old France, reckoned at 36 francs per acre, would amount, upon 131 
millions of acres, to 4716 millions of francs, for this item of French capita^ 
alone. 

f The same writer (Young) estimates, that in France, these two last 
items of capital, viz. implements, beasts of husbandry, stores of provisions, 
&c. may be set down at 48 francs per acre, one acre with another; making 
an aggregate of 6288 milUons of francs; which, added to the former esti- 
mate, shows a total of 11,000 millions of francs, capital engaged n the agri- 
cultural industry of Old France. He estimates the same items of capital 
in England at twice as much per acre. 



CHAP. X. ON PRODUCTION. 49 

the capital is lost, if the cultivator, after subtracting from the 
produce a fair allowance for the productive service of his land 
(rent),for the productive service of the capital embarked (in- 
terest), and for the productive service of the personal labour 
that has set the whole in motion (wages), contrive to make the 
annual produce replace the outlay of money, seed, live stock, 
&c., even to the article of manure, so as to put himself in pos- 
session of a value equal to what he started with the preceding 
year. 

Thus we find, that capital may yet be kept up, though al- 
most every part of it have undergone some change, and many 
parts be completely annihilated; for, indeed, capital consists 
not in this or that commodity or substance, but in its value. 

Nor is it difficult to conceive, that if the estate be sufficiently 
extensive, and managed with order, economy, and intelligence, 
the profits of the cultivator may enable him to lay by a sur- 
plus, after replacing the entire value of his capital, and defray 
ing the expenses of himself and family. The mode of dis- 
posing of this surplus is of the utmost importance to the com- 
munity, and will be treated of in the next chapter. All that 
is at present necessary is, to impress a clear conviction, that 
the value of capital, though consumed, is yet not destroyed, 
wherever it has been consumed in such way as to re-produce 
itself; and that a concern may go on forever, and annually ren- 
der a new product with the same capital, although that capital 
be in a perpetual course of consumption. 

After tracing capital through its various transformations in 
the department of agriculture, it will be easy to follow its 
transformations in the other two departments of manufacture 
and commerce. 

In manufacture, as well as agriculture, there are some 
branches of capital that last for years; buildings and fixtures 
for instance, machinery and some kinds of tools; others, on 
the contrary, lose their form entirely; the oil and pot-ash used 
by soap-makers cease to be oil and pot-ash when they assume 
the form of soap. In the same manner, the drugs employed 
in dyeing indigo cease to be Brazil wood or annatto, as the 
case may be, and are incorporated with the fabric they are 
employed in colouring. And so of the wages and maintenance 
of the labourers. 

In commerce, almost the whole capital undergoes complete 
transmutation, and many items of it several times in the course 
of a year. A merchant exchanges his specie for woollens or 
jewellery, which is one change of form. He ships them for 
Turkey, and, on the voyage, some more of his money is con- 
verted into the wages of the crew. The cargo arrives at Con- 
stantinople, where he sells the investment to the wholesale 
dealers, who pay him in bills upon Smyrna, which is a second 
metamorphosis; the capital embarked is now in the shape of 
bills, which he makes use of in the purchase of cotton at 
Smyrna; a third transformation. The cotton is shipped, for 
14 



50 ON PRODUCTION. book i. 

France and sold there, which completes the fourth change of 
form; thus reproducing the capital, most probably with profit, 
under its original shape of French coin. 

It is obvious, that the objects capable of acting the part of 
capital are innumerable. If, at any given period, one wished to 
know what the capital of a nation consisted of, it would be found 
composedof an infinity of objects, commodities and substances, 
of which it would be impossible to guess the aggregate value 
with any tolerable accuracy, and or which some are situated 
many thousand leagues from its frontiers. At the same time, 
it appears that the most insignificant and perishable articles are 
a part, and often a very important part too, of the national 
capital; that, although the items of capital are in a continual 
course of consumption and decomposition, it by no means fol- 
lows, that the capital itself is destroyed and consumed, provided 
that its value be preserved in some other shape; consequently, 
that the introduction or import of the vilest and most perisha- 
ble commodities may be just as profitable, as that of the most 
costly and durable — gold or silver; that, in fact, the former are 
more profitable the instant they are more sought after; that the 
producers themselves are the only competent judges of the 
transformation, export, and import, of these various matters 
and commodities; and that every government which interferes, 
every system calculated to influence production, can only do 
mischief. 

There are concerns, in which the capital is completely reno- 
vated, and the work of production begun afresh, several times 
in the year. An operation of manufacture, that can be perfect- 
ed and the product sold in three months, will admit of the capi- 
tal being turned to account annually four times. It may be 
supposed that the profit each time is less than when the capi- 
tal IS turned but once in twelve months. Were it otherwise, 
there would be four times the profit gained: an advantage that 
would soon attract an overflow of capital in this particular 
channel, and lower the profit by competition. On the other 
hand, products that it requires more than a year to perfect, 
such as leather, must, over and above the original capital, 
yield the profits of more than one year; otherwise, who could 
undertake to raise them? 

In the trade of Europe with China and the East Indies, the 
capital embarked is two or three years before its return. Nor 
is it necessary in commerce or in manufacture, any more than 
in agriculture, which has been cited as an example, that the 
capital should be realized in the form of money, to be entirely 
replaced. Merchants and manufacturers, for the most part, 
realize in this way the whole of their capital but once in their 
lives, and that is when they wind up and leave off" business. 
Yet they are at no loss to discover at any time whether their 
capital be enlarged or diminished, by referring to the invento- 
ry of their assets for the time being. 

The capital employed on a productive operation is always a 



CHAP. XI. ON PRODUCTION. 51 

mere advance made for payment of productive services, and 
reimbursed by the value of their resulting product. 

The miner extracts the ore from the bowels of the earth; 
the iron founder pays him for it. Here ends the miner's pro- 
duction, which is paid for by an advance out of the capital of 
the iron-founder. This latter next smelts the ore, refines and 
makes it into steel, which he sells to the cutler: thus is the 
production of the founder paid, and his advance reimbursed 
by a second advance on the part of the cutler, made in the 
price for the steel. This again the cutler works up into razor- 
blades, the price for which replaces his advance of capital, and 
at the same time pays for his productive agency. 

It is manifest, then, that the value of the ultimate product, 
razor-blades, has been sufficient to replace all the capital suc- 
cessively employed in its production, and, at the same time, 
to pay for the production itself; or rather, that the successive 
advances of capital have paid for the productive services, and 
the price of the product has reimbursed those advances; which 
is precisely the same thing as if the aggregate or gross value 
of the product had gone immediately to defray the charges of 
its production. 



CHAPTER XI. 



OF THE FORMATION AND MULTIPLICATION OP CAPITAL. 

In the foregoing chapter, I have shown how productive capi- 
tal, though kept during the progress of production, in a con- 
tinual state 01 employment, and subject to perpetual change 
and wear, is yet ultimately I'eproduced in full value, when the 
business of production is at an end. Since, then, wealth con- 
sists in the value of matter or substance, not in the substance 
or matter itself, I trust my readers have clearly compre- 
hended, that the productive capital employed, notwithstand- 
ing its frequent transmutations, is all the while the same 
capital. 

It will be conceived with equal facility, that, inasmuch as 
the value produced has replaced the value consumed, that 
produced value may be equal, inferior, or superior in amount, 
to the value consumed, according to circumstances. If equal, 
the capital has been merely replaced and kept up; if inferior, 
the capital has been encroached upon; but if superior, there 
has been an actual increase and accession of capital. This is 
precisely the point to which we traced the cultivator, cited by 
way of an example in the preceding chapter. We supposed 
him, after the complete re-establishment of his capital, so as to 



52 ON PRODUCTION. book i. 

put him in a condition to begin the new yearns cultivation with 
equal means at his disposal, to have netted a surplus produce 
beyond his consumption of some value or otherj say of 1000 
crowns. 

Now, let us observe the various methods, in which he may 
dispose of this surplus of 1000 crowns; for, simple as the mat- 
ter may appear to be, there is no point upon which more error 
has prevailed, or which has greater influence upon the con- 
dition of mankind. 

Whatever kind of produce this surplus, which we have valued 
at 1000 crowns, may consist of, the owner may exchange it 
for gold or silver specie, and bury it in the earth till he wants 
it again. Does the national capital suffer a loss of 1000 crowns 
by this operation? Certainly not; for we have just seen, that 
the value of that capital was before completely replaced. Has 
any one been injured to that amount? By no means; for he 
has neither robbed nor cheated any body, and has received no 
value whatever, without giving an equivalent. It may be said 
perhaps, he has given wheat in exchange for the crowns 
he has thus buried, which wheat was very soon consumed; yet 
the 1000 crowns still continue withdrawn from the capital of 
the community. But I trust it will be recollected, that wheat 
as well as silver or gold, may compose a part of the national 
capital; indeed, we have seen that national capital must ne- 
cessarily consist, in a great measure, of wheat and such like 
substances, liable to either partial or total consumption with- 
out any diminution of capital thereupon ; for, in short, that re- 
production completely replaces the value consumed, including 
the profits of the producers, whose productive agency is part 
of the value consumed. Wherefore, the instant that the cul- 
tivator has fully replaced his capital, and begins again with the 
same means as before, the 1000 crowns may be thrown into 
the sea without reducing the national capital. 

But let us trace the disposal of this surplus of 1000 crowns 
to every imaginable destination. — Suppose, for instance, that, 
instead of being buried, they have been spent by the cultivator 
upon an elegant entertainment. In this case, this whole value 
has been destroyed in an afternoon; a sumptuous feast, a ball, 
and fireworks, will have swallowed up the whole. The value 
thus destroyed exists no longer in the community ; it no longer 
forms an item in the aggregate of wealth; for those persons, 
into whose hands the identical pieces of silver have come, have 
given an equivalent in wines, refreshments, eatables, gun- 
powder, &c., all which values are reduced to nothing; the 
gross national capital, however, is no more diminished in this 
case than in the former. A surplus value had been produced; 
and this surplus is all that has been destroyed, so that things 
remain just as they were. 

Again, suppose these 1000 crowns to have been spent in the 
purchase of furniture, plate, or linen. Still there is no reduc- 
tion of national productive capital; although it must be allowed 



CHAP. XI. ON PRODUCTION. 53 

there is no accession; for in this case, nothing more is gained 
than the additional comforts the cultivator and his family de- 
rive from the newly purchased moveables. 

Fourthly and lastly, suppose the cultivator to add this ex- 
cess of 1000 crowns to his productive capital, that is to say, to 
re-employ it in increasing the productive powers of his farm 
as circumstances may require, in the purchase of more beasts 
of husbandry, or the hire and support of more labourers; and 
in consequence, at the end of the year, to gather produce 
enough to replace the full value of the 1000 crowns, with a 
profit, in such manner as to make them capable of yielding a 
fresh product the year after, and so on every year to eternity. 
It is then, and then only, that the productive capital of the 
community is really augmented to that extent. 

It must on no account be overlooked, that, in one way or 
other, a saving such as that we have been speaking of, whether 
expended productively or unproductively, still is in all cases 
expended and consumed; and this is a truth, that must re- 
move a notion extremely false, though very much in vogue — 
namely, that saving limits and injures consumption. No act 
of saving subtracts in the least from consumption, provided 
the thing saved be reinvested or restored to productive em- 
ployment. On the contrary, it gives rise to a consumption 
perpetually renovated and recurring; whereas there is no re- 
petition of an unproductive consumption, (a) 



fa J On the subject of saving, Sismondi, andi after him our own Malthus, 
have adopted a different opinion. According to them, the powers of pro- 
duction have already outrun the desire and the abihty to consume; conse- 
quently, every thing that tends to reduce that desire is injurious, because 
it is already too inert for the interests of production. Wherefore, inasmuch 
as the desire of accumulation is the direct opposite to that of consumption, 
it must of necessity be injurious in the highest degree. On these princi- 
ples, it might be proved without difficulty, that the prodigality of public 
authority, war, or the poor law of England, is a national benefit: for all of 
them stimulate consumption. Indeed, they leave their readers to draw 
this inevitable conclusion; for they maintain in plain terms, that the en- 
largement of the productive powers of man, by the use of machinery or 
otherwise, makes the existence of unproductive consumers a matter, not 
of mere possibility or probability, but of actual necessity and expedience. 
C Vide Sis mondi, Nouv. Prin. liv. ii. c. 3. and liv. iv. c. 4. Malthus, Prin. 
of Pol. Econ.J Tliese maxims would justify the prodigality of Louis XIV. 
of France, and of the Pitt system of England. But fortunately they are 
erroneous-, and if the contrary principles laid down by our author here and 
infra. Chap. 15, needed further illustration or support, they have been ren- 
dered still moi'e clear and convincing by his recent Leitres a M. Malthus. — 
It is true, that the enlargement of productive power naturally leads to the 
multiplication of unproductive consumers; why? because the desire of 
barren consumption, instead of being inert, is always active in the human 
breast. But that multiplication is not necessary; for the consumer may 
be made a producer, if not of material, at least of immaterial products, 
which latter are capable of infinitely more multiplication and variety, as 
well as of more general diffusion than material products. While this field 
remains open, a national administration never need despair of finding occu- 



54 ON PRODUCTION. book. i. 

It must be observed too, that the form in which the value 
saved, is so saved and re-employed productively, makes no es- 
sential difference. The saving is made with more or less ad- 
vantage, according to the circumstances and intelligence of the 
person making it. Nor is there any reason Avhy this portion 
of capital should not have been accumulated, without ever 
having for a moment assumed the form of specie. It may be, 
that an actual product of the farm has been saved and resown 
or planted, without having undergone any transmutation; per- 
haps the wood, that might have been used as firing to warm 
superfluous apartments, may have been converted into palings 
or other carpenter's work; and what was cut down in the first 
instance as an item of revenue, be so employed, as to become 
an item of capital. 

Now, the only way of augmenting the productive capital of 
individuals, as well as the aggregate productive capital of the 
community, is by this process of saving; in other words, of re- 
employ ing in production more products created than have been 
consumed in their creation. Productive capital can not be ac- 
cumulated by the mere scraping together of values without 
consuming them; nor any otherwise, than by withdrawing 
them from unproductive, aud devoting them to reproductive 
consumption. There is nothing odious in the real picture of 
the accumulation of capital; we shall presently see its happy 
consequences. 

The form, under which national capital is accumulated, is 
commonly determined by the respective geographical position, 
the moral character, and the peculiar wants of each nation. — 
The accumulation of a society in its early stages consist, for 
the most part, of buildings, implements of husbandry, live- 
stock, improvements of land; those of a manufacturing people 
chiefly of raw materials, or such as are still in the hands of its 
workmen, in a more or less finished state; and in some part of 
the necessary manufacturing tools and machinery. In a nation 
devoted to commerce, capital is mostly accumulated in the 
form of wrought or unwrought goods, that have been bought 
by the merchant for the purpose of re-sale. 

A nation that directs its energies at the same time to all 
three branches of industry, agriculture, manufacture, and com- 
merce, has a capital compounded of all these different classes 

pation for the human labour supplanted by machinery. And what is the 
parsimony of modern days? It is not the hoarding of coin or other valuables, 
which, though as our author observes, it subtracts nothing from the national 
capital, is yet a social mischief, because it suspends the utility of an exist- 
ing product, or at any rate, prevents it from yielding the human gratifica- 
tion, which its barren consumption would afford. The accumulations of the 
miser are now either vested in reproduction, which is beneficial; or in the 
ownership of the sources of production, land, &c. &c., which it matters not 
to public wealth who may be possessed of; or in the incumbrances of 
those sources, mortgages, national funds, &c. 84c., which are but portions of 
that ownership, and to which the same observation apphes. T.^ 



CHAP. XI. ON PRODUCTION. 55 

of produce, of that surprising quantity of stores of every 
kind, that we find civilized societies actually possessed of; 
which, by the intelligent use that is made of them, are con- 
stantly renovated or even increased, in spite of their enormous 
consumption, provided that the industry of the community 
produce more than is destroyed by its consumption, 

I do not mean to say, that each nation has produced and 
laid by the identical articles that compose its actual capital. — 
Values, in some shape or other, have been produced and laid 
by; and these, by various transmutations, have assumed the 
form most convenient for the time being. A bushel of wheat 
saved will feed a mason as well as a worker in embroidery. — 
In the one case, the bushel of wheat will be reproduced in the 
shape of the masonry of a house; in the other, under that of a 
laced suit. 

Every adventurer in industry, that has a capital of his own 
embarked in it, has ready means of employing his saving pro- 
ductively; if engaged in husbandry, he buys fresh parcels of 
land; or, by judicious outlays and improvements, augments 
the productive powers of what already belongs to him; if in 
trade, he buys and sells a greater quantity of merchandise. 
Capitalists have nearly the same advantage: they invest their 
whole savings in the same manner as their former capital is 
invested, and increase it pro tanto^ or look out for new ways 
of investment, which they are at no loss to discover; for the 
moment they are known to be possessed of loose funds, they 
seldom have to wait for propositions for the employment of 
them; whereas the proprietors of lands let out to farm, and in- 
dividuals that live upon fixed income, or the wages of their 
personal labour, have not equal facility in the advantageous 
disposal of their savings, and can seldom invest them till they 
amount to a good round sum. Many savings are therefore 
consumed, that might otherwise have swelled the capitals of 
individuals, and consequently of the nation at large. Banks 
and associations, whose object is to receive, collect, and turn 
to profit the small savings of individuals, are consequently 
very favourable to the multiplication of capital, whenever they 
are perfectly secure. 

The increase of capital is naturally slow of progress: for it 
can never take place without actual production of value, and 
the creation of value is the work of time and labour, besides 
other ingredients.* Since the producers are compelled to 
consume values all the while they are engaged in the creation 
of fresh ones, the utmost they can accumulate, that is to say, 

* The savings of a rich contractor, of a swindler or cheat, of a royal fa- 
vourite, saturated with gi-ants, pensions, and unmerited emoluments, are 
actual accumulations of capital, and are sometimes made vvith facility enough. 
But the values thus amassed by a privileged few, are, in reality, the pro- 
duct of the labour, capital and land, of numbers, who might themselves 
have made the saving, and turned it to their own account, but for the spo- 
liation of injustice, fraud, or violence. 



56 ON PRODUCTION. book i. 

add to reproductive capital, is the value they produce beyond 
what they consume; and the sum of this surplus is all the ad- 
ditional wealth that the public or individuals can acquire. The 
more values are saved and reproductively employed in the 
year, the more rapid is the national progress towards prosperi- 
ty. Its capital is swelled, a larger quantity of industry is set 
in motion, and saving becomes more and more practicable, be- 
cause the additional capital and industry are additional means 
of production. 

Every saving or increase of capital lays the groundwork of 
a perpetual annual profit, not only to the saver himself, but 
likewise to all those whose industry is set in motion by this 
item of new capital. It is for this reason, that the celebrated 
Adam Smith likens the frugal man, who enlarges his produc- 
tive capital but in a solitary instance, to the founder of an alms- 
house for the perpetual support of a body of labouring persons 
upon the fruits of their own labour; and on the other hand, 
compares the prodigal that encroaches upon his capital, to the 
roguish steward that should squander the funds of a charitable 
institution, and leave destitute, not merely those that derived 
present subsistence from it, but likewise all who might derive 
it hereafter. He pronounces without reserve every prodigal 
to be a public pest, and every careful and frugal person to be 
a benefactor of society.* 

It is fortunate, that self-interest is always on the watch to 
preserve the capital of individuals; and that capital can at no 
time be withdrawn from productive employment, without a 
proportionate loss of revenue. 

Smith is of opinion, that, in every country, the profusion and 
ignorance of individuals and of the public authorities is more 
than compensated by the prevalent frugality of the people at 
large, and by their careful attention to their own interests, t 
At least it seems undeniable, that almost all the nations of 
Europe are at this moment advancing in opulence; which 
could not be the case, unless each of them, taken in the ag- 
gregate, produced more than it consumed unproductively.ij: 

* Wealth of Nations, b. ii. c. 3. Lord Lauderdale, in a work entitled, 
" Enquiry into the Nature and Origin of Public Wealth" has proved to his 
own conviction, in opposition to Smith, that the accumulation of capital is 
adverse to the increase of wealth: grounding his argument on the position, 
that such accumulation withdraws from circulation values which would be 
serviceable to industry. But this position is untenable. Neither produc- 
tive capital, nor the additions made to it, are withdrawn from circulation; 
otherwise they would remain inactive, and yield no profit whatever. On the 
conti-ary, the adventurer in industry, who makes use of it, employs, dis- 
poses of, and wholly consumes it, but in a way that reproduces it, and that 
with profit. I have noted this eiTor of his lordship, because it has been 
made tlie basis of other works on political economy, which abound in false 
conclusions, having set out on this false principle. 

f Wealth of Nations, b. ii. c. 3. 

\ Except during the continuance of ruinous wars, or excessive public ex- 



CHAP. XI. ON PRODUCTION. 57 

Even the revolutions of modern times appear to have been ra- 
ther favourable than otherwise to the progress of opulence; for 
they are no longer, as in ancient days, followed by continued 
hostile invasion, or universal and protracted pillage; whereas, 
on the other hand, they have commonly overthrown the bar- 
riers of prejudice, and opened a wider field for talent and en- 
terprise. But it is still a question, whether this frugality, which 
Smith gives individuals credit for, be not, in the most numer- 
ous classes of society, a forced consequence of a vicious politi- 
cal organization. It is true, that those classes receive their 
fair proportion of the gross produce, in return for their pro- 
ductive exertions. How many individuals live in constant 
penury, in the countries considered as the most wealthy ! How 
many families are there, both in town and country, whose 
whole existence is a succession of privations; who, with every 
thing around them to awaken their desires, are reduced to the 
satisfaction of the very lowest wants, as if they lived in an age 
of the grossest barbarism and national poverty! 

Thus I am forced to infer, that, though unquestionably there 
is an annual saving of produce in almost all the nations of Eu- 
rope, this saving is extorted much more commonly from urgent 
and natural wants, than from the consumption of superfluities, 
to which policy and humanity would hope to trace it. Whence 
arises a strong suspicion of some radical defect in the policy 
and internal economical systems of most of their governments. 

Again, Smith thinks that the moderns are indebted for their 
comparative opulence, rather to the prevalence of individual 
frugality, than to the enlargement of productive power. I ad- 
mit, that some absurd kinds of profusion are more rare now- 
a-days than formerly;* but it should be recollected, that such 

travag'ance, such as occun-ed in France under the domination of Napoleon. 
It can not be doubted, that, at that disastrous period of her history, even in 
the moments of her most brilhant military successes, the amount of capital 
dilapidated, exceeded the aggregate of savings. Requisitions and the havoc 
of war, in addition to the compulsor}' expenditure of individuals, and the 
pressure of exorbitant taxation, must unquestionably have destroyed more 
values, than the exei'tions of individual economy could devote to reproduc- 
tive investment. The sovereign, wholly ignorant of Political Economy him- 
self, and consequently affecting to despise its suggestions, encouraged his 
coui'tiers, like himself, to squander the enormous revenues derived from his 
favour, in the apprehension that wealth might make them independent, (a) 

* It is not, however, to be supposed, that the internal economy of ancient 
and of modern states is so widely different as some may be led to imagine. 



(a) Whatever might be her momentary losses, France is rapidly recover- 
\r\gi while her rival continues so exhausted, that there are serious doubts, 
whether she will have strength to carry her through. During the war, her 
savings certainly exceeded her expenditure, and her productive means 
were progressively expending. With a reduced expenditure, and tlie same 
productive means, it is now very doubtful, whether her production be not 
actually on the dechne. According to our author's principles, this must be 
the fault of her rulers. T. 
15 



58 ON PRODUCTION. book i. 

E refusion can never be practised, except by a very small num- 
er of persons; and if we take the pains to consider how wide- 
ly the enjoyment of a more abundant and varied consumption 
is diffused, particularly among the middle classes of society, I 
think it will be found, that consumption and frugality have in- 
creased both together; for they are by no means incompatible. 
How many concerns are there in every branch of industry, 
that, in times of prosperity, yield enough produce to the ad- 
venturers to enable them to enlarge both their expenses and 
their savings? What is true of one particular concern, may 
possibly be true of the national production in the aggregate. 
The wealth of France was progressively increasing during the 
first forty years of the reign of Louis XIV., in spite of the 
profusion, public and private, that the splendour of the court 
occasioned. The stimulus given to production by Colbert 
multiplied her resources faster than the court squandered them. 
Some people supposed, that this very prodigality was the cause 
of their multiplication; the gross fallacy of which notion is 
demonstrated by the circumstance, that, after the death of that 
minister, the extravagancies of the court continuing at the 
same rate, and the progress of production being unable to keep 
pace with them, the kingdom was reduced to an alarming state 
of exhaustion. The close of that reign was the most gloomy 
that can be imagined. 

After the death of Louis XIV., the public and private ex- 
penditure of France have been still further increasing;* and 

There is a striking' similarity between the rise and fall of the opulent cities 
of Tyre, Carthage, and Alexandria, and those of the Venetian, Florentine, 
Genoese, and Dutch republics. The same cause must ever be attended with 
the same effect. We read of the wonderful riches of Croesus, king- of 
Lydia, even before his conquest of some neighbouring states: whence we 
may infer, that the Lydians were an industrious and frugal people; for a 
king can draw his resources solely from his subjects. The dry study of 
Political Economy would lead to this inference; but it happens to be also 
confirmed by the historical testimony of Justin, who calls the Lydians a peo- 
ple once powerful in the resovirces of industry; {gens industrid quondam 
polens;) and gives a notion of their enterprising character, when he tells us, 
that Cyrus did not complete their subjugation, until he had habituated them 
to indolence, gaming, and debauchery. (Jussique cauponias et ludicras 
artes et lenodnia exercere). It is clear, therefore, that they must have before 
been possessed of the opposite qualities. Had Crasus not taken a turn for 
pomp and military renown, he would probably have remained a powerful 
monarch, instead of ending his days in misfortune. The art of connecting 
cause with effect, and the study of Political Economy, are probably as con- 
ducive to the personal welfare of kings, as to that of their subjects. 

• This increase of expenditure has been not altogether nominal, and con- 
sequential upon the reduction in the standard of the silver coinage of France; 
a greater quantity and vaiiety of products was consumed, and those of a 
better and more expensive quality. And though refined silver is now in- 
trinsically worth nearly as much as in the days of Louis XIV., since the 
same weight of silver is given for the same quantity of wheat; yet the same 
ranks of society now actually expend more silver in weight as well as in de- 
nomination. 



CHAP. XI. ON PRODUCTION. 50 

to me it appears indisputable, that her national wealth has ad- 
vanced likewise: Smith himself admits that it did; and what is 
true of France is so of most of the other states of Europe in 
some degree or other. 

Turgot* falls in with Smith's opinion. He expresses his 
belief, that frugality is more generally prevalent now than in 
former times, and gives the following reasons: that, in most 
European countries, the interest of money was, on the average, 
lower than it had ever before been, a clear proof of the greater 
abundance of capital; therefore, that greater frugality must 
have been exerted in the accumulation of that capital, than at 
any former period: and, certainly, the low rate of interest 
proves the existence of more abundant capital; but it proves 
nothing with regard to the manner of its acquirement: m fact, 
it may have been acquired just as well by enlarged production 
as b)'^ greater frugality, as t have just been demonstrating. 

However, I am far from denying, that, in many particulars, 
the moderns have improved the art of saving as well as that 
of producing. A man is not easily satisfied with less gratifi- 
cations than he has been accustomed to; but there are many 
which he has learnt to procure at a cheaper rate. For instance, 
what can be more beautiful than the coloured furniture papers 
that adorn the walls of our apartments, combining the graces 
of design with the freshness of colouring? Formerly, many of 
those classes of society that now make use of paper-hangings, 
were content with whitewashed walls, or a coarse ill-executed 
tapestry, infinitely dearer than the modern paperings. By the 
recent discovery of the efficacy of sulphuric acid in destroying 
the mucilaginous particles of vegetable oils, they have been 
rendered serviceable in lamps on the Argand principle of a 
double current of air, which before could only be lighted with 
fish oil, twice or thrice as dear. This discovery has of itself 
placed the use of those lamps, and the fine light they give, 
within reach of almost every class, t 

For this improvement in frugality, we are indebted to the 
advances of industry, which has, on the one hand, discovered 
a great number of economical processes; and, on the other, 
every where solicited the loan of capital, and tempted the 
holders of it, great or small, by better terms and greater se- 
curity. In times when little industry existed, capital, being 
unprofitable, was seldom in any other shape than that of a 
hoard of specie locked up in a strong box, or buried in the 
earth as a reserve against emergency: however considerable in 

• Rejiex sur la Form, et la Distrib. des Mich. § 81. 

■j- It is to be feared, that taxation will ultimately deprive the consuiner of 
the advanta,^e of such improvements. The increase of the internal taxes 
(droits reunis), of the stamps on patents, of the taxes and impedimenta af- 
fecting the internal transport of commodities, have already brought the 
price of these vegetable oils almost to a par with the article they had so 
beneficially supplanted. 



60 ON PRODUCTION. book i. 

amount, it yielded no sort of benefit whatever, being in fact 
little else than a mere precautionary deposit, great or small. 
But the moment that this hoard was found capable of yielding 
a profit proportionate to its magnitude, its possessor had a dou- 
ble motive for increasing it, and that not of remote or pre- 
cautionary, but of actual, immediate benefit; since the profit 
yielded by the capital might, without the least diminution of 
it, be consumed and procure additional gratifications. Thence- 
forward it became an object of greater and more general solici- 
tude than before, in those that had none to create, and in those 
that had one to augment, productive capital; and a capital, 
bearing interest began to be regarded as a property equally 
lucrative, and sometimes equally substantial with land yield- 
ing rent. To such as regard the accumulation of capital as an 
evil, inasmuch as it tends to aggravate the inequality of human 
fortune, I would suggest, that, if accumulation has a constant 
tendency to the multiplying of large fortunes, the course of 
nature has an equal tendency to divide them again, A man, 
whose life has been spent in augmenting his own capital and 
that of his country, must die at last, and the succession rarely 
devolves upon a sole heir or legatee, except where the national 
laws sanction entails and the right of primogeniture. In coun- 
tries exempt from the baneful influence of such institutions, 
where nature is left to its own free and beneficent action, 
wealth is naturally diffused by subdivision through all the 
ramifications of the social tree, carrying health and life to the 
furthest extremities.* The total capital of the nation is en- 
larged, at the same time that the capital of individuals is sub- 
divided. 

Thus the growing wealth of an individual, when honestly 
acquired and reproductively employed, far from being viewed 
with jealous eyes, ought to be hailed as a source of general 
prosperity. I say honestly acquired, because a fortune amass- 
ed by rapine or extortion is no addition to the national stock; 

• It is to be regretted, th^it people should be so little attentive to merit 
in their testamentary dispositions. There is always a degree of discredit 
thrown upon the memory of a testator, by his bounty to an unworthy ob- 
ject; and, on the contrary, nothing- endears him more to the survivors than a 
bequest dictated by public spirit, or the love of private virtue. The foundation 
of a hospital, of an establishment for the education of tlie poor, of a per- 
petual premium for g-ood actions, or a bequest to a writer of eminent merit, 
extends the influence of the wealthy beyond the limits of mortality, and 
enrols his name in the records of honour."(a) 



(a) This laudable ambition is always proportionate to the wealth; the 
civil liberty, and the intelligence of a nation. In England, scarcely a year 
passes over our heads without more than one instance of useful and exten- 
sive munificence. The bequests to the elder Pitt, to Wilberforce, and other 
public men, the frequent foundations and enlargements of institutions of 
rehef or education, reflect equal honour on the character of the nation, and 
the memory of the individuals. T. 



CHAP. XII. ON PRODUCTION. 61 

it is rather a portion of capital transferred from the hands of 
one man, where it already existed, to those of another, who 
has exerted no productive industry. On the contrary, it is but 
too common, that wealth ill-gotten is ill-spent also. 

The faculty of amassing capital, or, in another word, value, 
I apprehend to be one cause of the vast superiority of man 
over the brute creation. Capital, taken in the aggregate, is a 
powerful engine consigned to the use of man alone. He can 
direct towards any one channel of employment the successive 
accumulations of many generations. Other animals can com- 
mand, at most, no more than their respective individual accu- 
mulations, scraped together in the course of a few days, or a 
season at the utmost, which can never amount to any thing 
considerable: so that, granting them a degree of intelligence 
they do not seem possessed of, that intelligence would yet re- 
main ineffectual, for want of the materials to set it in motion. 

Moreover, it may be remarked, that the powers of man, re- 
sulting from the faculty of amassing capital, are absolutely inde- 
finable; because there is no assignable limit to the capital he 
may accumulate, with the aid of time, industry, and frugality. 



CHAPTER XII. 



OF UNPRODUCTIVE CAPITAL. 



We have seen ahove, that values once produced may be de- 
voted, either to the satisfaction of the wants of those who have 
acquired them, or to a further act of production. They may 
also be withdrawn both from unproductive consumption and 
from reproductive employment, and remain buried or con- 
cealed. 

The owner of values, in so disposing of them, not only de- 
prives himself of the self-gratification he might have derived 
from their consumption, but also of the advantage he might 
draw from the productive agency of the vajue hoarded. He 
furthermore withholds from industry the profits it might make 
b}^ the employment of that value. 

Amongst abundance of other causes of the misery and weak- 
ness of the countries subjected to the Ottoman dominion, it 
can not be doubted, that one of the principal is, the vast quan- 
tity of capital remaining in a state of inactivity. The general 
distrust and uncertainty of the future induce people of every 
rank, from the peasant to the pacha, to withdraw a part of 
their property from the greedy eyes of power: and value can 



62 ON PRODUCTION. book. i. 

never be invisible, without being inactive. This misfortune 
is common to all countries, where the government is arbitra- 
ry, though in different degrees proportionate to the severity 
of despotism. For the same reason, during the violence of 
political convulsions, there is always a sensible contraction of 
capital, a stagnation of industry, a disappearance of profit, and 
a general depression while the alarm continues: and, on the 
contrary, an instantaneous energy and activity highly favour- 
able to public prosperity, upon the re-establishment of con- 
fidence. The saints and madonnas of superstitious nations, the 
splendid pageantry and richly decorated idols of Asiatic wor- 
ship, gave life to no agricultural or manufacturing enterprise. 
The riches of the fane and the time lost in adoration would 
really purchase the blessings, that barren prayers can never 
extort from the object of idolatry. There is a great deal of 
inert capital in countries, where the national habits lead to the 
extended use of the precious metals in furniture, clothes, and 
decorations. The silly admiration bestowed by the lower or- 
ders on the display of such idle and unproductive finery, is 
hostile to their own interests. For the opulent individual, who 
vests 100,000 fr. in gilding, plate, and the splendour of his 
establishment, has it not to lay out at interest, and withdraws 
it from the support of industry of any kind. The nation loses 
the annual revenue of so much capital, and the annual profit of 
the industry it might have kept in activity. 

Hitherto we have been considering that kind of value only, 
which is capable, after its creation, of being as it were, incor- 
porated with matter, and preserved for a longer or shorter pe- 
riod. But all the values producible by human industry, have 
not this quality. Some there are, which must have reality, 
because they are in high estimation, and purchased by the ex- 
change of costly and durable products, which nevertheless have 
themselves no durability, but perish the moment of their pro- 
duction. This class of values I shall define in the ensuing 
chapter, and denominate iwwa/eWa/ products. * 

• It was my first intention to call these perishable products, but this term 
would be equally applicable to products of a material kind. Intransferaile 
would be equally incorrect, for this class of products does pass from the pro- 
ducer to the consumer. The word transient, does not exclude all idea of 
duration whatever, neither does the word momentary. 



CHAP. XIII. ON PRODUCTION. 63 



CHAPTER XIIL 



OP IMMATERIAL PRODUCTS, OR VALUES CONSUMED AT THE MO- 
MENT OF PRODUCTION. 

A PHYSICIAN goes to visit a sick person, observes the symp- 
toms of disease, prescribes a remedy, and takes his leave with- 
out depositing any product, that the invalid or his family can 
transfer to a tnird person, or even keep for the consumption of 
a future day. 

Has the industry of the physician been unproductive? Who 
can for a moment suppose so? The patient's life has been sav- 
ed perhaps. Was this product incapable of becoming an ob- 
ject of barter? By no means; the physician's advice has been 
exchanged for his fee; but the want of this advice ceased the 
moment it was given. The act of giving was its production, 
of hearing its consumption; and the consumption and produc- 
tion were simultaneous. 

This is what I call an immaterial product. 

The industry of a musician or an actor yields a product of 
the same kind: it gives one an amusement, a pleasure one can 
not possibly retain or preserve for future consumption, or as 
the object of barter for other enjoyments. This pleasure has 
its price it is true: but it has no further existence, except per- 
haps in the memory, and no exchangeable value, after the in- 
stant of its production. 

Smith will not allow the name of products to the results of 
these branches of industry. Labour so bestowed he calls un- 
productive; an error he was led into by his definition of wealth, 
which he defines to consist of things bearing a value capable 
of being preserved, instead of extending the name to all things 
bearing exchangeable value: consequently, excluding products 
consumed as soon as created. The industry of the physician, 
however, as well as that of the public functionary, the advo- 
cate or the judge, which are all of them of the same class, sat- 
isfies wants of so essential a nature, that without those profes- 
sions no society could exist. Are not, then, the fruits of their 
labour real? They are so far so, as to be purchased at the price 
of other and material products, which Smith allows to be 
wealth; and by the repetition of this kind of barter, the produ- 
cers of immaterial products acquire fortunes. * 

• Wherefore de Verri is wrong in asserting, that the occupations of the 
sovereign, the magistrate, the soldier, and the priest, do not fall within the 
cognizance of Political Economy. {Meditazioni sulla Economia Political 
§24.) 



64 ON PRODUCTION. book i. 

To descend to items of pure amusement, it can not be deni- 
ed, that the representation of a good comedy gives as solid a 
pleasure, as a box of comfits, or a discharge of fireworks, which 
are products, even within Smith's definition. Nor can I dis- 
cover any sound reason, why the talent of the painter should 
be deemed productive, and not the talent of the musician.* 

Smith himself has exposed the error of the economists in 
confining the term, wealth, to the mere value of the raw mate- 
rial contained in each product; he advanced a great step in po- 
litical economy, by demonstrating wealth to consist of the raw 
material, plus, the value added to it by industry; but, having 
gone so far as to promote to the rank of wealth an abstract 
commodity, value, why reckon it as nothing, however real and 
exchangeable, when not incorporated in matter? This is the 
more surprising, because he went so far as to treat of labour, 
abstracted from the matter wherein it is employed; to examine 
the causes which operate upon and influence its value; and 
even to propose that value as the safest and least variable mea- 
sure of all other values, t 

The nature of immaterial products makes it impossible ever 
to accumulate them, so as to render them a part of the national 
capital. A people containing a host of musicians, priests, and 
public functionaries, might be abundantly amused, well versed 
in religious doctrines, and admirably governed; but that is all. 
Its capital would receive no direct accession from the total la- 
bour of all these individuals, though industrious enough in their 
respective vocations, because their products would be consum- 
ed as fast as produced. 

Consequently, nothing is gained on the score of public pros- 
perity, by ingeniously creating an unnatural demand for the 
labour of any of these professions: the labour diverted into 
thatchannel of production can not be increased, without increas- 
ing the consumption also. If this consumption yield a grati- 
fication, then indeed we may console ourselves for the sacri- 
fice; but when that consumption is itself an evil, it must be 
confessed the system which causes it is deplorable enough. 

This occurs in practice, whenever legislation is too compli- 
cated. The study of the law, becoming more intricate and 
tedious, occupies more persons, whose labour must likewise 

• This error has already been pointed out by M. Germain Gamier, in the 
notes to his French translation of Smith. 

j- Some writers, who have probably taken but a cursory view of the po- 
sitions here laid down, still persist in setting down the producers of imma- 
terial products among-st the unproductive labourers. But it is vain to strug- 
gle against the nature of things. Those at all conversant with the science 
of political econom}', are compelled to yield involuntary homage to its prin- 
ciples. Thus Sismondi, after having spoken of the values expended in the 
wages of unproductive labourers, goes on to say, " Ce sont des consumma- 
tions rapides qui suivent immediatement la production.'^ JVouv. Princ. torn, 
ii. p. 203, admitting a production by those he had pronounced to be un- 
productive ! 



CHAP. XIII. ON PRODUCTION. 65 

be better paid. What does society gain by this? are the respec- 
tive rights of its members better protected? Undoubtedly not: 
the intricacy of law, on the contrary, holds out a great encou- 
ragement to fraud, by multiplying the chances of evasion, and 
very rarely adds to the solidity of title or of right. The only 
advantage is, the greater frequency and duration of suits. The 
same reasoning applies to superfluous offices in the public ad- 
ministration. To create an office for the administration of what 
ought to be left to itself, is, to do an injury to the subject in the 
first instance, and make him pa}'" for it afterwards as if it w^ere 
a benefit.* 

Wherefore it is impossible to admit the inference oft M. Gar- 
nier, that, because the labour of physicians, lawyers, and the 
like is productive, therefore a nation gains as much by the 
multiplication of that class of labour as of any other. This 
would be the same as bestowing upon a material product more 
manual labour than is necessary for its completion. The la- 
bour productive of immaterial products, like every other la- 
bour, is productive so far only as it augments the utility, and 
therebv the value of a product: beyond this point it is a purely 
unproductive exertion. To render the laws intricate purpose- 
ly to give lawyers full business in expounding them, would 
be equally absurd, as to spread a disease that doctors may find 
practice. 

Immaterial products are the fruit of human industry, in 
which term we have comprised every kind of productive la- 
bour. It is not so easy to understand how they can at the same 
time be the fruit of capital. Yet these products are for the 
most part the result of some talent or other, which always im- 
plies previous study; and no study can take place without ad- 
vances of capital. 

Before the advice of the physician can be given or taken, 
the physician or his relations must first have defrayed the 
charges of an education of many years' duration ; he must have 
subsisted while a student; professors must have been paid; 
books purchased; journeys perhaps have been performed; all 
which implies the disbursement of a capital previously accu- 
mulated. X So likewise the lawyer's opinion, the musician's 



* What, then, are we to think of those who assert in substance, if not in 
words, that such a formahty or such a tax is productive of one benefit at 
least, namely, the maintenance of such or such an establishment of clerks 
and officers. 

•j- Traduction de Smith, note 20. 

+ 1 will not here anticipate the investigation of the profits of industry and 
capital, but confine myself to observe, en passant, that capital is thrown away 
upon the physician, and his fees improperly limited, unless, besides the re- 
compense of his actual labour and talent, (which latter is a natural agent 
gratuitously given to him,) they defray the interest of the capital expended 
in his education, and not the common rate of interest, but calculated at the 
rate of an annuity. 

16 



66 ON PRODUCTION. book i. 

song, &c. are products, that can never be raised without the 
concurrence of industry and capital. Even the ability of the 
public functionary is an accumulated capital. It requires the 
same kind of outlay, for the education of a civil or military 
engineer, as for that of a physician. Indeed, we may take it 
for granted, that the funds expended in the training of a young 
man for the public service, are found by experience to be a 
fair investment of capital, and that labour of this description 
ia well paid; for we find more applicants than offices in almost 
every branch of administration, even in countries where offi- 
ces are unnecessarily multiplied. 

The industry productive of immaterial products will be 
found to go through exactly the same process, as, in the ana- 
lysis made in the beginning of this work, we have shown to 
be followed by industry in general. This may be illustrated 
by an example. Before an ordinary song can be executed, the 
arts of the composer and the practical musician must have been 
regular and distinct callings; and the best mode of acquiring 
skill in them must have been discovered: this is the depart- 
ment of the man of science, or theorist. The application of 
this mode and of this art, have been left to the composer and 
singer, who have calculated, the one in composing his tune, the 
other in the execution of it, that it would affiord a pleasure, to 
which the audience would attach some value or other. Final- 
ly, the execution is the concluding operation of industry. 

There are, however, some immaterial products, with re- 
spect to which the two first operations are so extremely trifling, 
that one may almost account them as nothing. Of this descrip- 
tion is the service of a menial domestic. The art of service is 
little or nothing, and the application of that art is made by the 
employer; so that nothing is left to the servant, but the execu- 
tive business of service, which is the last and lowest of industri- 
ous operations. 

It necessarily follows, that, in this class of industry, and some 
few others practised by the lowest ranks of society, that of 
the porter for instance, or of the prostitute, &c. &c.: the charge 
of training being little or nothing, the products may be look- 
ed upon not only as the fruits of very coarse and primitive 
industry, but likewise as products, to the creation of which 
capital has contributed nothing; for I can not think the expense 
of these agents' subsistence from infancy, till the age of emanci- 
pation from paternal care, can be considered as a capital, the 
interest of which is paid by the subsequent profits. 1 shall 
give my reasons for this opinion when I come to speak of 
wages.* 

•The wages of the mere labourer are limited to the bare necessaries of 
life, without which liis agency can not be continued and renewed; there is 
no surplus for tlie interest on capital. But the subsistence of his children, 
until old enough to earn their own livelihood, is comprised in the necessa- 
ries of the labourer. 



CHAP. XIII. ON PRODUCTION. 67 

The pleasures one enjoys at the price of any kind of per- 
sonal exertion, are immaterial products, consumed at the in- 
stant of production by the very person that has created them. 
Of this description are the pleasures derived from arts studied 
solely for seljf-amusement. In learning music, a man devotes 
to that study some small capital, some time and personal la- 
bour; all which together are the price paid for the pleasure of 
singing a new air or taking part in a concert. 

Gaming, dancing, and field-sports, are labours of the same 
kind. The amusement derived from them is instantly con- 
sumed by the persons who have performed them. When a 
man executes a painting, or makes any article of smith's or 
joiner's work for his amusement, he at the same time creates a 
durable product or value, and an immaterial product, viz. his 
personal amusement.* 

In speaking of capital, we have seen, that part of it is devot- 
ed to the production of material products, and part remains 
wholly unproductive. There is also a further part productive 
of utility or pleasure, which can, therefore, be reckoned as a 
portion neither of the capital engaged in the production of ma- 
terial objects, nor of that absolutely inactive. Under this head 
may be comprised dwelling-houses, furniture, and decorations, 
that are an addition to the mere pleasures of life. The utility 
they afford is an immaterial product. 

When a young couple sets up house-keeping for the first 
time, the plate they provide themselves with can not be con- 
sidered as absolutely inactive capital, for it is in constant do- 
mestic use; nor can it be reckoned as capital engaged in the 
raising of material products; for it leads to the production of 
no one object capable of being reserved for future consump- 
tion; neither is it an object of annual consumption, for it may 
last, perhaps, for their joint lives, and be handed down to their 
children; but it is capital productive of utility and pleasure. 
Indeed, it is so much value accumulated, or, in other words, 
withdrawn from reproductive consumption; consequently, 
yielding neither profit nor interest, but productive of some de- 
gree of benefit or utility, which is gradually consumed and in- 
capable of being realized, yet it is possessed of real and posi- 
tive value, since it is occasionally the object of purchase: as in 
the instance of the rent of a house or the hire of furniture, and 
the like. 

Although it be a sad mistake of personal interest to vest the 
smallest particle of capital in a manner wholly unproductive, 

* An indolent and inert people is always little addicted to amusements 
resulting' from the exercise of personal faculties. Labour is attended with 
so much pain to them, as very few pleasures are intense enough to repay. 
The Turks think us mad to find pleasure in tlie violent motions of the dance; 
without reflecting, that it causes to us infinitely less fatigue than to them- 
selves. They prefer pleasures prepared by the fatigue of others. There 
is, perhaps, as much industry expended on pleasure in Turkey as with us; 
but it is exerted in general by slaves, who do not participate in the product. 



6S ON PRODUCTION; book i. 

it is by no means so to lay out, in a way productive of utility 
or amusement, so much as may be not disproportionate to the 
circumstances of the individual. There is a regular gradation of 
the ratio of capital so vested by individuals respectively, from 
the rude furniture of the poor man's hovel, up to the costly or- 
naments and dazzling jewels of the wealthy. When a nation 
is rich, the poorest family in it possesses a capital of this kind, 
not indeed of any great amount, but still enough to satisfy mo- 
derate and limited desires. The prevalence of general wealth 
in a community is more strongly indicated by meeting univer- 
sally with some useful and agreeable household conveniences 
in the dwellings of the inferior ranks, than by the splendid 
palaces and costly magnificence of a few favourites of fortune, 
or by the casual display of diamonds and finery, we sometimes 
see brought together in a large city, where the whole wealth 
of the place is often exhibited at one view, at a fete or a thea- 
tre of public resort; but which, after all, are a mere trifle, com- 
pared with the aggregate value of the household articles of a 
great people. 

The component items of a capital, producing bare utility or 
amusement, are liable to wear and tear, though in a very slight 
degree; and if that wear and tear be not made good out of the 
savings of annual revenue, there is a gradual dissipation and 
reduction of capital. 

This remark may appear trifling; yet how many people 
think they are living upon their revenue, when they are at the 
same time partially consuming their capital ! Suppose, for in- 
stance, a man is proprietor of the house he lives in; if the 
house be calculated to last 100 years, and have cost 1 00,000 /r. 
in the building, it costs the proprietor or his heirs lOOOyr. per 
annum, exclusive of the interest upon the original cost, other- 
wise the whole capital will be extinguished, or nearly so, by 
the end of 100 years. The same reasoning is applicable to 
every other item of capital devoted to the production of utility 
or pleasure; to a side-board, a jewel, every imaginable object, 
in short, that comes under the same denomination. 

And vice versa, when annual revenue, arising from what- 
ever source, is encroached upon for the purpose of enlarging 
the capital devoted to the production of useful or agreeable 
objects, there is an actual increase of capital and of fortune, 
though none of revenue. 

Capital of this class, like all other capital without exception, 
is formed by the partial accumulations of annual products. 
There is no other way of acquiring capital, but by personal 
accumulation, or by succession to accumulation of others. 
Wherefore, the reader is referred on this head to Chap. 11, 
where I have treated of the accumulation of capital. 

A public edifice, a bridge, a highway, are savings or accu- 
mulations of revenue, devoted to the formation of a capital, 
whose returns are an immaterial product consumed by the pub- 
lic at large. If the construction of the bridge or highway, 



CHAP. XIII. ON PRODUCTION. G9 

added to the purchase of the ground it stands upon, have cost 
a million oi francs, the use the public makes of it may be esti- 
mated to cost 50,000 /r. per annum.* 

There are some immaterial products, towards which the 
land is a principal contributor. Such is the pleasure derived 
from a park or pleasure-garden. The pleasure is afforded by 
the continual and daily agency of the natural object, and is 
consumed as fast as produced. A ground yielding pleasure 
must, therefore, not be confounded with ground lying waste or 
in fallow. Wherein again appears the analogy of land to capital, 
of which, as we have seen, some part is productive of imma- 
terial products, and some part is altogether inactive. 

Gardens and pleasure grounds have generally cost some ex- 
pense in embellishment; in which case, capital and land unite 
their agency to yield an immaterial product. 

Some pleasure-grounds yield likewise timber and pasturage: 
these are productive of both classes of products. The old- 
fashioned gardens in France yielded no material product; 
those of modern times are somewhat improved in this particu- 
lar, and would be more so, if culinary herbs and fruit-trees 
were oftener introduced. Doubtless it would be harsh to find 
fault with a proprietor in easy circumstances, for appropriating 
part of his freehold to the mere purpose of amusement. The 
delightful moments he there passes with his family around him, 
the wholesome exercise he takes, the spirits he inhales, are 
among the most valuable and substantial blessings of life. By 
all means, then, let him lay out his ground as he likes, and give 
full scope to his taste, or even caprice; but if caprice can be 
directed to an useful end, if he can derive profit without abridg- 
ing enjoyment, his garden will have additional merit, and pre- 
sent a two-fold source of delight to the eye of the statesman 
and the philosopher. 

I have seen some few gardens possessed of this double facul- 
ty of production; whence, although the lime, horse-chestnut, 
and sycamore trees, and others of the ornamental kind, were 
by no means excluded, any more than the lawns and the par- 
terres; yet at the same time the fruit-trees, decked in the bloom 
of vernal promise, or weighed down by the maturity of autum- 
nal wealth, added a variety and richness of colouring to the 
other local beauties. The advantages of distance and position 
were attended to without violating the convenience of division 

*lf it entail a further charg'e of 1000 /r. for annual repairs and mainte- 
nance, the public consumption of pleasure or utility may be set down at 
51,000 /?•. per annum. This is the onlj' way of taking" the account, with a 
view to compare the advantage derived by the payers of public taxes, with 
the sacrifices imposed on them for the acquisition of such conveniences. In 
the case put above, the public will be a gainer, if the outlay of 51,000 yV. 
have effected an annual saving in the charge of national production, or, what 
is the same thing, an annual increase of the national product, of still larger 
amount. In the conti-ary supposition, the national administration will have 
led the nation into a losing concern. 



70 ON PRODUCTION. book i. 

and inclosure. The beds and borders, planted with vegeta- 
bles, were not provokingly straight, regular, or uniform, but 
harmonized with the undulations of the surface, and of vege- 
tation of larger growth; and the walks were so disposed as to 
serve both for pleasure and cultivation. Every thing was ar- 
ranged with a view to ornament, even to the vine-trelliced well 
for filling the watering-pots. The whole, in short, was so or- 
dered, as if designed to impress the conviction, that utility and 
beauty are by no means incompatible, and that pleasure may 
grow up by the side of wealth. 

A whole country may, in like manner, grow rich even upon 
its ornamental possessions. Were trees planted wherever they 
could thrive without injury to other products,* besides the 
accession of beauty and salubrity, and the additional moisture 
attracted by the multiplication of timber-trees, the value of the 
timber alone would, m a country of much extent, amount to 
something considerable. 

There is this advantage, in the cultivation of timber-trees, 
that they require no human industry beyond the first planting, 
after which nature is the sole agent of their production. But 
it is not enough merely to plant, we must check the desire of 
cutting down, until the weak and slender stalk, gradually im- 
bibing the juices of the earth and atmosphere, shall, without 
the hand of cultivation, have acquired bulk and solidity, and 
spread its lofty foliage to the heavens. t The best that man 
can do for it is, to forget it for some years; and, even where 
it yields no annual product it will recompense his forbearance 
when arrived at maturity, by an ample supply of firing, and of 
timber for the carpenter, the joiner, and the wheel-wright. 

In all ages, the love of trees and their cultivation has been 
strongly recommended by the best writers. The historian of 
Cyrus records, among his chief titles to renown, the merit of 
having planted all iVsia Minor. In the United States, upon the 
birth of a daughter, the cultivator plants a little wood, to grow 
up with her, and to be her portion on the day of marriage. (1) 

* In many countries, an exaggerated notion seems to prevail, of the dam- 
age done by timber-trees to other products of the soil; yet it should seem, 
that they rather enhance than diminish the revenue of the landholder; for 
we find those countries most productive, that are the best clothed with 
timber: witness Normandy, England, Belgium, and Lombardy. 

-(-The leaves of trees absorb the carbonic-acid gas floating in the atmos- 
phere we breathe, and which is so injurious to respiration. When this gas 
is superabundant, it brings on asphyxia, and occasions death. On the con- 
trary, vegetation increases the proportion of oxygen, which is the gas most 
favourable to respiratioa and to health. Ceteris paribus, those towns are 
the healthiest, which have the most open spaces covered with trees. It 
would be well to plant all our spacious quays. 



(1) [The American cultivator might be said, with much greater sem- 
blance of truth, on the birth of a daughter, to cut down 'a little wood,' in- 
stead of planting one.] Americajt Editoh. 



CHAP. XIV. ON PRODUCTION. 71 

Sully, whose views of policy were extremely enliojhtened, en- 
riched most of the provinces of France with the plantation he 
directed. I have seen several, to which public gratitude still 
affixes his name; and they remind me of the saying of Addison, 
who was wont to exclaim, whenever he saw a plantation, " A 
useful man has passed this way." 

As yet we have been taken up with the consideration of the 
agents essential to production; without whose agency mankind 
would have no other subsistence or enjoyment, than the scanty 
and limited supply Ihat nature affords spontaneously. We 
first investigated the mode in which these agents, each in its 
respective department, and all in concert, co-operate in the 
work of production, and have afterwards examined in detail 
the individual action of each, for the further elucidation of the 
subject. — We must now proceed to examine the extrinsic and 
ac'cidental causes, which act upon production, and clog or fa- 
cilitate the exertion of productive agents. 



CHAPTER XIV. 



OF THE RIGHT OF PROPERTY. 

It is the province of speculative philosophy to trace the ori- 
gin of the right of property; of legislation to regulate its trans- 
fer; and of political science to devise the surest means of pro- 
tecting that right. Political Econom)^ views the right of 
property solely as the most powerful of all encouragements to 
the multiplication of wealth, and is satisfied with its actual sta- 
bility, without inquiring about its origin or its safeguards. In 
fact, the legal inviolability of property is obviously a mere 
mockery, where the sovereign power is unable to make the 
laws respected, where it either practises robbery itself,* or is 
impotent to repress it in others; or where possession is render- 
ed perpetually insecure, by the intricacy of legislative enact- 
ments, and the subtleties of technical nicety. Nor can pro- 
perty be said to exist, where it is not matter of reality as well 
as of right. Then, and then only can the sources of produc- 
tion, land, capital, and industry, attain their utmost degree of 
fecundity. 

• The strength of an individual is so little, when opposed to that of the 
government he lives under, that tlie subject can liave no security against 
the exactions and abuses of authority, except in those countries, wliere the 
guardianship of the laws is entrusted to the all-searching vigilance of a free 
press, and their violation checked by an efficient national representation. 



72 ON PRODUCTION. book i. 

There are some truths so completely self-evident, that de- 
monstration is quite superfluous. This is one of that number. 
Who will attempt to deny, that the certainty of enjoying the 
fruits of one's land, capital and labour, is the most powerful 
inducement to render them productive? Or who is dull enough 
to doubt, that no one knows so well as the proprietor how to 
make the best use of his property? Yet how often in practice 
is that inviolability of property disregarded, which, in theory, 
is allowed by all to be so immensely advantageous? How often 
is it broken in upon for the most insignificant purposes; and its 
violation, that should naturally excite indignation, justified 
upon the most flimsy pretexts? so few persons are there who 
have a lively sense of any but a direct injury, or, with the 
most lively feelings, have firmness enough to act up to their 
sentiments. There is no security of property, where a despot- 
ic authority can possess itself of the property of the subject 
against his consent. Neither is there such security, where the 
consent is merely nominal and delusive. In England, the 
taxes are imposed by the national representation; if, then, the 
minister be in the possession of an absolute majority, whether 
by means of electioneering influence, or by the overwhelming 
patronage foolishly placed at his disposal, taxation would no 
longer be in reality imposed by the national representatives; 
the body bearing that name would, in effect, be the representa- 
tives of the minister; and the people of England would be 
forcibly subjected to the severest privations, to further projects 
that possibly might be every way injurious to them.* 

It is to be observed, that the right of property is equally in- 
vaded, by obstructing the free employment of the means of 
production, as by violently depriving the proprietor of the 
product of his land, capital, or industry; for the right of pro- 
perty, as defined by jurists, is the right of use, or even abuse. 
Thus, landed property is violated by arbitrarily prescribing 
tillage or plantation; or by interdicting particular modes of 
cultivation; the property of the capitalist is violated, by pro- 
hibiting particular ways of employing it; for instance, by in- 
terdicting large purchases of corn, directing all bullion to be 
carried to the mint, forbidding the proprietor to build on his 
own soil, or prescribing the form and requisites of the build- 
ing. It is a further violation of the capitalist's property to 
prohibit any kind of industry, or to load it with duties 
amounting to prohibition, after he has once embarked his 
capital in that way. It is manifest, that a prohibition upon 
sugar would annihilate most of the capital of the sugar refiners, 
vested in furnaces, utensils, &c. &c.t 

* Adam Smith has asserted, that the securitj^ afforded to property by the 
laws of England, has more than counteracted the repeated faults and blun- 
ders of its government. It may be doubted, whether he would now adhere 
to that opinion. 

f It would be vain to say to him, why not employ your works in some 



CHAP. XIV. ON PRODUCTION. 73 

The property a man has in his own industry, is violated, 
whenever he is forhidden the free exercise of his faculties and 
talents, except insomuch as they would interfere with the 
rights of third parties.'^ A similar violation is committed when 
a man's labour is put in requisition for one purpose, though 
designed by himself for another; as when an artisan or trader 
is forced into the military life, whether permanently or merely 
for the occasion. 

I am well aware, that the importance of maintaining social 
order, whereon the security of property depends, takes pre- 
cedence of property itself; for which very reason, nothing 
short of the necessity of defending that order from manifest 
danger can authorize these or similar violations of individual 
riglit. And this it is which impresses upon the proprietors 
the necessity of requiring, in the constitution of the body po- 
litic, some guarantee or other, that the public service shall 
never be made a mask to the passions and ambition of those 
in power. 

Thus taxation, when not intended as an engine of national 
depression and misery, must be proved indispensable to the 
existence of social order; every step it takes beyond these 
limits, is an actual spoliation; for taxation, even where levied 
by national consent, is a violation of property; since no values 
can be levied, but upon the produce of the land, capital, and 
industry of individuals. 

But there are some extremely rare cases, where interference 
between the owner and his property is even beneticial to pro- 
other way? Probably, neither the spot nor the works of a refinery could 
be otherwise employed without enormous loss. 

* The industrious faculties are, of all kinds of property, the least ques- 
tionable; being" derived directly either from nature, or from personul assi- 
duity. The property in them is of higher pretensions than that of tiie 
land, which may generally be traced up to an act of spoliation; for it is 
hardly possible to show an instance, in which its ownership has been legiti- 
mately transmitted from the first occupancy. It ranks higher than the 
right of the capitalist also; for even taking it for granted, that this latter 
has been acquired without any spoliation whatever, and by the gradual ac- 
cumidations of ages, yet the succession to it could not have been tstablisli- 
ed without the aid of legislation, wliich aid may have been granted on co'i- 
ditions. Yet, sacred as the property in the faculties of industry is, it is 
constantl}' infringed upon, not only in the flagrant abiLse of personal slavery, 
but in many other points of more frequent occurrence. 

A government is guilty of an invasion upon it, when it appropriates to 
itself a particular branch of industry, the business of exchange and broker- 
age for example; or when it sells tiie exclusive privilege of conducting it. 
It is still a greater violation to authorize a gendarme, commissary of police 
or judge, to arrest and detain individuals at discretion, on the plea of pub- 
lic safety or security to the constituted authorities; thus depriving the in- 
dividual of the fair and reasonable certainty of having his time and facul- 
ties at his own disposal, and of being able to complete what he may begin 
upon. What robber or despoller could commit a more atrocious act of in- 
vasion upon the pubhc security, certain as he is of being speedily pvit down, 
and counteracted by private as well as public opposition? 

17 



74 ON PRODUCTION. book i. 

duction itself. For example, in all countries that admit the 
detestable right of slavery, a right standing in hostility to all 
others, it is found expedient to limit the master's power over 
his slave, (a) Thus also, if a society stand in urgent need of 
timber for the shipwright or the carpenter, it must reconcile 
itself to some regulations respecting the felling of private 
woods;* or the fear of losing the veins of mineral that inter- 
sect the soil, may sometimes oblige a government to work the 
mines itself. It may be readily conceived, that, even if there 
were no restraints upon mining, want of skill, the impatience 
of avarice, or the insufficiency of capital, might induce a pro- 
prietor to exhaust the superficial, which are commonly the 
poorest lodes, and occasion the loss of those of superior depth 
and quality. (I) Sometimes a vein of mineral passes through 
the ground of many proprietors, but is accessible only in one 
spot. In this case, the obstinacy of a refractory proprietor 
must be disregarded, and the prosecution of the works be com- 
pulsory; though, after all, I will not undertake to affirm, that 
it would not be more advisable on the whole to respect his 
rights, or that the possession of a few additional mines is not 
too dearly purchased by this infringement upon the inviola- 
bility of property. 

Lastly, public safety sometimes imperiously requires the 
sacrifice of public property; but that sacrifice is a violation, 
notwithstanding any indemnity given in such cases. For the 
right of property implies the free disposition of one's own; 
and its sacrifice, however fully indemnified, is a forced dispo- 
sition, (b) 

• Probably also, were it not for maratime wars, originating-, sometimes in 
puerile vraiity, and sometimes in national errors of self-interest, commerce 
would be the best purveyor of timber for ship-building; so that, in reality, 
the abuse of the interference of public authority, in respect to the growth 
of private timber, is only a consequence of a previous abuse of a more de- 
structive and less excusable character. 



("aj This is merely an instance of the necessity of counteracting one 
poison by another. T. 

fbj Property being a mere creature of society, is, in strict justice, lia- 
ble to the conditions essential to the well-being of society its creator. But 
beyond all doubt, it is expedient to render it as inviolable and extensive as 
possible. Why? Because, 1. It is one of the rewards of industry; and 
there is a manifest expedience in enlarging those stimulative rewards. 2. 
Its objects neither can nor will be turned to so much productive account, 
otherwise than by the perpetuation of the ownership. T. 



(1) [If no one knows so well as the proprietor, how to make the best use 
of his property, as our author has just remarked, what advantage can result 
to society from the interference, in any case, of public authority, with the 
rightsof individuals in the business of production. Nothing but the absolute 
maintenance of the social order should ever be permitted for an instant, to 



CHAP. XV. ON PRODUCTION. 75 

When public authority is not itself a spoliator, it procures 
to the nation the greatest of all blessings, protection from 
spoliation by others. Without this protection of each indi- 
vidual by the united force of the whole community, it is im- 
possible to conceive any considerable development of the 
productive powers of man, of land, and of capital; or even to 
conceive the existence of capital at all; for it is nothing more 
than accumulated value, operating under the safeguard of au- 
thority. This is the reason why no nation has ever arrived at 
any degree of opulence, that has not been subject to a regular 
government. Civilized nations are indebted to political or- 
ganization for the innumerable and infinitely various produc- 
tions, that satisfy their infinite wants, as well as for the fine 
arts and the opportunities of leisure that accumulation affords, 
without which the faculties of the mind could never be culti- 
vated, or man by their means attain the full dignity, whereof 
his nature is susceptible. 

The poor man, that can call nothing his own, is equally in- 
terested with the rich in upholding the inviolability of pro- 
perty. His personal services would not be available, without 
the aid of accumulations previously made and protected. Every 
obstruction to, or dissipation of these accumulations, is a ma- 
terial injury to his means of gaining a livelihood; and the ruin 
and spoliation of the higher is surely followed by the misery 
and degradation of the lower classes. A confused notion of 
the advantages of this right of property has been equally con- 
ducive with the personal interest of the wealthy, to make all 
civilized communities pursue and punish every invasion of 
property as a crime. The study of political economy is ad- 
mirably calculated to justify and confirm this act of legisla- 
tion; inasmuch as it explains, why the happy effects, result- 
ing from the right of property, are more striking in proportion 
as that right is well guarded by political institutions. 



CHAPTER XV. 

OF THE VENT OR DEMAND (a) FOR PRODUCTS. 

It is common to hear adventurers in the different channels 
of industry assert, that their difficulty lies not in the produc- 



Ca) Debouches, vent, which must always imply demand. The latter 
term is made use of as more famihar to the English reader. T. '» 

violate the sacred right of private property. Quite as specious, though 
equally unsound reasons may be assigned for imposing restraints upon & va- 
riety of other employments besides minin|f.] Ajsbrican EDiToa. 



76 ON PRODUCTION. book'i. 

tion, but in the disposal of commodities; that produce would 
always be abundant, if there were but a ready demand, or 
vent. When the vent for their commodities is slow, difficult, 
and productive of little advantage, they pronounce money to 
be scarce; the grand object of their desire is, a consumption 
brisk enough to quicken sales and keep up prices. But ask 
them what peculiar causes and circumstances facilitate the 
demand for their products and 5'^ou will soon perceive that 
most of them have extremely vague notions of these matters; 
that their observation of facts is imperfect, and their explana- 
tion still more so; that they treat doubtful points as matter of 
certainty, often pray for what is directly opposite to their in- 
terests, and importunately solicit from authority a protection 
of the most mischievous tendency. 

To enable us to form clear and correct practical notions, in 
regard to the vents for the products of industry, we must care- 
fully analyse the best established and most certain facts, and 
apply to them the inferences we have already deduced from a 
similar way of proceeding; and thus perhaps we may arrive 
at new and important truths, that m.ay serve to enlighten the 
views of the agents of industry, and to give confidence to the 
measures of governments anxious to afford them encourage- 
ment. . 

A man, who applies his labour to the investing of objects 
with value by the creation of utility of some sort, can not ex- 
pect that the value to be appreciated and paid for, unless 
where other men have the means of purchasing it. Now, of 
what do these means consist? Of other values, of other pro- 
ducts, likewise the fruit of industry, capital, and land. Which 
leads us to a conclusion, that may at first sight appear para- 
doxical; viz: that it is production which opens a demand for 
products. 

Should a tradesman say, "I do not want other products for 
my woollens, I want money," there could be little difficulty in 
convincinghim, that his customers can not pay him in money, 
without having first procured it by the sale of some other com- 
modities of their own. "Yonder farmer," he may be told, 
" will buy your woollens, if his crops be good, and will buy 
more or less according to their abundance or scantiness; he 
can buy none at all, if his crops hU altogether. Neither can 
you buy his wool or his corn yourself, unless 3^du contrive to 
ge,t woollens or some other article to buy withal. You say, 
you only want money; 1 say, you want other commodities, 
and not money. For what, in point of fact, do j^ou want the 
money? Is it not for the purchase of raw materials or stock 
for your trade, or victuals for your support?* Wherefore, it 
is products that you want, and not money. The silver coin 

* Even when monej' is obtained with a view to hoard or bury it, the ul- 
timate object is alwaj's to emplo)' it in a purchase of some kind. The heir 
of the hick\ finder uses it in tliat way, if the miser do not: fur money, as mo- 
ney, has no other use than to buy with. 



CHAP. XV. ON PRODUCTION. 77 

you will have received on the sale of your own products, and 
given in the purchase of those of other people, will the next 
moment execute the same office between other contractina; par- 
ties, and so from one to another to infinit}^; just as a public ve- 
hicle successively transports objects one after another. If5'ou 
can not find a ready sale for your commodit}^, will you say, 
it is merely for want of a vehicle to transport it? For after 
all, money is but the agent of the transfer of values. Its 
whole utility has consisted in conveying to your hands the 
value of the commodities, which your customer- has sold, for 
the purpose of buying again from you; and the very next pur- 
chase you make, it will again convey to a third person the 
value of the products you may have sold to others. So that 
you will have bought, and every body must buy, the objects 
of want or desire, each with the value of his respectivepro- 
ducts transformed into money for the moment only. Other- 
wise, how could it be possible, that there should now be 
bought and sold in France five or six times as many commodi- 
ties, as in the miserable reign of Charles VI? Is it not obvi- 
ous, that five or six times as many commodities must have 
been produced, -and that they must have served to purchase 
one or the other? 

Thus, to say that sales are dull, owing to the scarcity of 
money, is to mistake the means for the cause; an error that 
proceeds from the circumstances, that almost all produce is in 
the first instance exchanged for money, before it is ultimately 
converted into other produce: and the commodity, which re- 
curs sp repeatedly in use, appears to vulgar apprehensions the 
most important of commodities, and the end and object of all 
transactions, whereas it is only the medium. Sales can not be 
said to be dull because money is scarce, but because other pro- 
ducts are so. There is always money enough to conduct the 
circulation and mutual interchange of other values, when those 
values really_ exist. Should the increase of traffic require more 
money to facilitate it, the want is easily supplied, and is a strong 
indication of prosperity — a proof that a great abundance of va- 
lues has been created, which it is wished'to exchange for other 
values. In such cases, merchants know well enough how to 
find substitutes for the product serving as the medium of ex- 
change or money:* and money itself soon pours in, for this 
reason,_ that all produce naturally gravitates to that place 
^yhere it is most in demand. It is a good sign when the bu- 
siness istoo great for the money; just in the same way as it is 
a good sign when the goods are too plentiful for the warehouses. 

When a superabundant article can find no vent, the scarcity 
of money has so little to do with the obstruction of its sale, that 
the sellers would gladly receive its value in goods for their 
own consumption at the current price of the day: they would 
not ask for money, or have any occasion for that product, since 

* By bills at sight or after date, bank-notes, running credits, vvrite-ofTs, 
&.C. as at London and AinstL-rdam. 



78 ON PRODUCTION. book i. 

the only use they could make of it would be to convert it forth- 
with into articles of their own consumption.* 

This observation is applicable to all cases, where there is a 
supply of commodities or of services in the market. They will 
universally find the most extensive demand in those places, 
where the most values are produced; because in no other 
places are the sole means oi purchase created, i. e. values. 
Money performs but a momentary function in this double ex- 
change; and when the transaction is finally closed, it will al- 
ways be found, that one kind of produce has been exchanged 
for another. 

It is worth while to remark, that a product is no sooner 
created, than it, from that instant, affords a market for other 
products to the full extent of its own value. When the pro- 
ducer has put the finishing hand to his product, he is most anx- 
ious to sell it immediately, lest its value should vanish in his 
hands. Nor is he less anxious to dispose of the money he may 
get for it; for the value of money is also perishable. But the 
only way of getting rid of money is in the purchase of some 
product or other. Thus, the mere circumstance of the crea- 
tion of one product immediately opens a vent for other pro- 
ducts. 

For this reason, a good harvest is favourable, not only to 
the agriculturist, but likewise to the dealers in all commodi- 
ties generally. The greater the crop, the larger are the pur- 
chases of the growers. A bad harvest, on the contrary, hurts 
the sale of commodities at large. And so it is also with the 
products of manufacture and commerce. The success of one 
branch of commerce supplies more ample means of purchase, 
and consequently opens a vent for the products of all the other 
branches; on the other hand, the stagnation of one channel of 
manufacture, or of commerce is felt in all the rest. 

But it may be asked, if this be so, how does it happen, that 
there is at times so great a glut of commodities in the market, 
and so much difficulty in finding a vent for them? Why can 
not one of these superabundant commodities be exchanged for 
another? I answer, that the glut of a particular commodity 
arises from its having outrun the total demand for it in one of 
two ways; either because it has been produced in excessive 
abundance, or because the produce of other commodities has 
fallen short. 

It is because the production of some commodities has de- 
clined, that other commodities are superabundant. To use a 

* I speak here of their aggregate consumption, ■ whether unproductive 
and desig-ned to satisfy the personal wants of themselves and their families, 
or expended in tlie sustenance of reproductive industry. The woollen or 
cotton manufacturer operates a two-fold consumption of wool and cotton, 
1. For his personal wear. 2. For the supply of his manufacture; but, be 
the purpose of his consumption what it may, whether personal gratification 
or reproduction, he must needs buy what he consumes with what he pro- 
duces. 



CHAP. XV. ON PRODUCTION. 79 

more hackneyed phrase, people have bought less, because they 
have made less profit;* and they have made less profit for one 
of two causes; either they have found difficulties in the em- 
ployment of their productive means, or these means have them- 
selves been deficient. 

' It is observable, moreover, that precisely at the same time 
that one commodity makes a loss, another commodity is mak- 
ing excessive profit. t And, since such profits must operate as 
a powerful stimulus to the cultivation of that particular kind of 
produce, there must needs be some violent means, or some ex- 
traordinary cause, a political or natural convulsion, or the 
avarice or ignorance of authority, to perpetuate this scarcity 
on the one hand, and consequent glut on the other. No soon- 
er is the cause of this political disease removed, than the means 
of production feel a natural impulse towards the vacant chan- 
nels, the replenishment of which restores activity to all the 
others. One kind of production would seldom outstrip the 
rest, and its products be disproportionately cheapened, were 
production left entirely to itself. ."{: 

•Individual profits must, in all ranks of production, from the general mer- 
chant to the common artisan, be derived from the participation in the values 
produced. The ratio of that participation will form the subject of Book 
II., infra. 

t The reader may easily apply these maxims to any time or country he is 
acquamted with. We have had a striking- instance in France, during the 
years 1811, 1812, and 1813; when the high prices of colonial produce, of 
wheat, and other articles, went hand in hand with the low price of many 
others that could find no advantageous vent. 

i: These considerations have hitherto been almost wholly overlooked, 
though forming the basis of correct opinions on matters of commerce, and 
of Its reg-ulation by the national authority. The right course where it has, 
by good luck, been pursued, appears to have been selected by accident, or 
by, at most a confused idea of its propriety, without either self-conviction, 
or the ability to convince other people. 

Sismondi, who seems not to have very well understood the principles laid 
down in this and the three first chapters of Book II. of this work, instances 
the immense quantity of manufactured produce with which England has of 
late inundated the markets of other nations, as a proof, that it is possible for 
mdustry to be too productive. (Mm. Frin. liv. iv. c. 4.) But the glut 
thus occasioned proves nothing more than the feebleness of production in 
those countries, that have been thus glutted with English manufactures. 
Did Brazd produce wherewithal to purchase the English goods exported 
thither, those goods would not glut her market. Were England to admit 
the import of the products of the United States, she would find a better 
market for her own in those States. The English government, bv the ex- 
orbitance of its taxation upon import and consumption, virtually interdicts 
to Its subjects many kinds of importation, thus obliging the merchant to of- 
fer to foreign countries a higher price for those articles, whose import is 
practicable, as sugar, coffee, gold, silver, &c., for the price of the precious 
metals to them is enhanced by the low price of their commodities; which ac- 
counts for the ruinous returns of their commerce. 

I would not be understood to maintain in tliis chapter, that one product 
can not be raised in too great abundance, in relation to all others; but 
merely that nothing is more favourable to the demand of one product, than 



80 ON PRODUCTION. book i. 

Should a producer imagine, that many other classes, yield- 
ing no material products, are his customers and consumers 
equally with the classes that raise themselves a product of their 
own; as, for example, public functionaries, physicians, law- 
yers, churchmen, &c. , and thence infer, that there is a class of 
demand other than that of the actual producers, he would but 
expose the shallowness and superficiality of his ideas. A 
priest goes to a shop to buy a gown or a surplice; he takes the 
value, that is to make the purchase, in the form of money. 
Whence had he that money? From some tax-gatherer («) who 
has taken it from a tax-payer. But whence did this latter de- 
rive it? From the value he has himself produced. This value, 
first produced by the tax-payer, and afterwards turned into 
money, and given to the priest for his salary, has enabled him 
to make the purchase. The priest stands in the place of the 
producer, who might himself have laid the value of his product 
on his own account, in the purchase, perhaps, not of a gown or 
surplice, but of some other more serviceable product. The con- 
sumption of the particular product, the gown or surplice, has 
but supplanted that of some other product. It is quite impos- 
sible that the purchase of one product can be effected, other- 
wise than by the value of another. * 

the supply of another; that the import of Enghsh manufacturers into Bra- 
zil would cease to be excessive and be rapidly absorbed, did Brazil produce 
on her side returns sufficiently ample; to which end it would be necessary, 
that the legislative bodies of eitlier country should consent, the one to free 
production, the other to free importation. In Brazil, every thing is grasped 
by monopoly, and property is not exempt from the invasion of the govern- 
ment. In England, the heavy duties are a serious obstruction to the foreign 
commerce of the nation, inasmuch as they circumscribe the clioice of re- 
turns. I happen myself to know of a most valuable and scientific collection 
of natural history, which could not be imported from Brazil into England 
by reason of the exorbitant duties. (6) 

* The capitalist, in spending the interest upon his capital, spends his 
portion of the products raised by the co-operation of that capital. The 
general rules that regulate the ratio he receives will be investig-ated in 
Book II., infra. Should he ever spend the principal, still he consumes 
products only; for capital consists of products, devoted indeed to reproduc- 
tive, but susceptible of unproductive consumption; to which it is in fact con- 
signed whenever it is wasted or dilapidated. 

(a) The clergy of France are now part of the national establishment, and 
receive salaries from the public Exchequer. T. 

(5) The views of jSismondi, in this particular, have been since adopted by 
our own Malthus, and those of our author b}'^ Ricardo. This difference of 
opinion has given rise to an interesting discussion between our author and 
Malthus, to whom he has recently addressed a correspondence on this and 
other parts of the science. Were any thing wanting to confirm the argu- 
ments of this chapter, it would be supplied by a reference to his Lettre 1, 
^ M. Malthus. Sismondi has vainly attempted to answer Ricardo, but has 
made no mention of his original antagonist. Vide Annalts de Legislation^ 
No. 1. art. 3. Geneve, 1820. T. 



CHAP. XV. ON PRODUCTION. 81 

From this important truth may be deduced the following 
important conclusions: — 

1. That, in every community the more numerous are the 
producers, and the more various their productions, the more 
prompt, numerous, and extensive are the vents for those pro- 
ductions; and, by a natural consequence, the more profitable 
are they to the producers; for price rises with the demand. 
But this advantage is to be derived from real production alone, 
and not from a forced circulation of products; for a value once 
created is not augmented in its passage from one hand to an- 
other, nor by being seized and expended by the government, 
instead of by an individual. The man, that lives upon the 
productions of other people, originates no demand for those 
productions; he merely puts himself in the place of the pro- 
ducer, to the great injury of production, as we shall presently 
see. 

2. That each individual is interested in the general prosperi- 
ty of all, and that the success of one branch of industry pro- 
motes that of all the others. In fact, whatever profession or 
line of business a man may devote himself to, he is the better 
paid and the more readily finds employment, in proportion as 
he sees others thriving equally around him. A man of talent, 
that scarcely vegetates in a retrograde state of society, would 
find a thousand ways of turning his faculties to account in a 
thriving community that could afford to employ and reward 
his ability. A merchant established in a rich and populous 
town, sells to a much larger amount than one who sets up in a 
poor district, with a population sunk in indolence and apathy. 
What could an active manufacturer, or an intelligent mer- 
chant, do in a small deserted and semi-barbarous town in a re- 
mote corner of Poland or Westphalia? Though in no fear of a 
competitor, he could sell but little, because little was pro- 
duced; whilst at Paris, Amsterdam, or London, in spite of the 
conipetition of a hundred dealers in his own line, he might do 
business on the largest scale. The reason is obvious: he is sur- 
rounded with people who produce largely in an infinity of 
ways, and who make purchases, each with his respective pro- 
ducts, that is to say, with the money arising from the sale of 
what he may have produced. 

This is the troe source of the gains made by the towns' peo- 
ple out of the country people, and again by the latter out of 
the former; both of them have wherewith to buy more largely, 
the more ample they themselves produce. A city, standing 
in the centre of a rich surrounding country, feels no want of 
rich and numerous customers; and, on the other side, the vi- 
cinity of an opulent city gives additional value to the produce 
of the country. The division of nations into agricultural, 
manufacturing, and commercial, is idle enough. For the suc- 
cess of a people in agriculture is a stimulus ito its manufactur- 
ing and commercial prosperity; and the flourishins: condition 
18 



82 ON PRODUCTION. book i. 

of its manufacture and commerce reflects a benefit upon its agri- 
culture also.*^ 

The position of a nation, in respect of its neighbours, is ana- 
logous to the relation of one of its provinces to the others, or 
of the country to the town; it has an interest in their prosperi- 
ty, being sure to profit by their opulence. The government 
of the United States, therefore, acted most wisely, in their 
attempt, about the year 1802, to civilize their savage neigh- 
bours, the Creek Indians, The design was to introduce habits 
of industry amongst them, and make them producers, capable 
of carrying on a barter trade with the States of the Union; for 
there is nothing to be got by dealing with a people that have 
nothing to pay. It is useful and honourable to mankind; that 
one nation among so manys hould conduct itself uniformly upon 
liberal principles. The brilliant results of this enlightened 
policy will demonstrate, that the systems and theories really 
destructive and fallacious are the exclusive and jealous max- 
ims acted upon by the old European governments, and by 
them most impudently styled practical truths, for no other 
reason, as it would seem, than because they have the misfor- 
tune to put them in practice. The United States will have the 
honour of proving experimentally, that true policy goes hand 
in hand with moderation and humanity.t 

3. From this fruitful principle, we may draw this further 
conclusion, that it is no injury to the internal or national indus- 

* A productive establishment on a large scale is sure to animate the in- 
dustry of the whole neig-hbourhood. "In Mexico," says Humboldt, " the 
best cultivated tract, and that which brings to the recollection of the tra- 
veller the most beautiful parts of French scenery, is the level country ex- 
tending from Salamanca as far as Silao, Guanaxuato, and Villa de Leon, and 
encircling the richest mines of the known world. Wherever the veins of 
precious metal have been discovered and worked, even in the most desert 
parts of the Cordilleras, and in the most barren and insulated spots, the 
working of the mines, instead of interrupting the business of superficial 

cultivation, has given it more than usual activity The opening of a 

considerable vein is sure to be followed by the immediate erection of a 

town; farming concerns are established in the vicinity; and the spot 

so lately insulated in the midst of wild and desert mountains, is soon brought 
into contact with the tracts before in tillage." (Essai pol. sur la JSfouv. Es- 
pagne.') 

fit is only by the recent advances of Political Economy, that these most 
important truths have been made manifest, not to vulgar apprehension 
alone, but even to the most distinguished and enlightened observers. We 
read in Voltaire, that " such is the lot of humanity, that the patriotic desire 
for one's country's grandeur, is but a wish for the humiliation of one's 
neighbours; that it is clearly impossible for one country to gain, ex- 
cept by the loss of another." {Diet. Phil. Art. Patrk.) By a continuation 
of the same false reasoning, he goes on to declare, that a thorough citizen of 
the world can not wish his country to be greater or less, richer or poorer. 
It is true, that he would not desire her to extend the limits of her dominion, 
because, in so doing, she might endanger her own well-being: but he will 
desire her progress in wealth, for her progressive prosperity promotes that 
of all otlier nations. 



CHAP. XV. ON PRODUCTION. 83 

try and production to buy and import commodities from abroad; 
for nothing can be bought from strangers, except with native 
products, which find a vent in this external traffic. Should it 
be objected, that this foreign produce may have been bought 
with specie, I answer, specie is not always a native product, 
but must have been bought itself with the products of native 
industry; so that, whether the foreign articles be paid for in 
specie or in home produce, the vent for national industry is the 
same in both cases.* 

4. The same principle leads to the conclusion, that the en- 
couragement of mere consumption is no benefit to commerce; 
for the difficulty lies in supplying the means, not in stimulat- 
ing the desire of consumption; and we have seen, that produc 
tion alone, furnishes those means. Thus it is the aim of good 
government to stimulate production, of bad government to en- 
courage consumption. 

For the same reason, that the creation of a new product is 
the opening of a new vent for other products, the consumption 
or destruction of a product is the stoppage of a vent for them. 
This is no evil, where the end of the products has been an- 
swered by its destruction, which end is the satisfying of some 
human want, or the creation of some new product designed for 
such a satisfaction. Indeed, if the nation be in a thriving con- 
dition, the gross national reproduction exceeds the gross con- 
sumption. The consumed products have fulfilled their office, 
as it is natural and fitting they should; the consumption, how- 
ever, has opened no new vent, but just the reverse.! 

Having once arrived at the clear conviction, that the gene- 
ral demand for produce is brisk in proportion to the activity 
of production, we need not trouble ourselves much to inquire 
towards what channel of industry production may be most ad- 
vantageously directed. The products created give rise to va- 
rious degrees of demand, according to the wants, the manners, 
the comparative capital, industry, and natural resources of each 
country; the article most in request, owing to the competition 

*This effect has been sensibly experienced in Brazil of late years. The 
large imports of European commodities, which the freedom of navigation 
directed to the markets of Brazil, has been favourable to its native produc- 
tions and commerce, that Brazil products never found so g-ood a sale. Here 
there is an instance of a national benefit arising from importation. By the 
way, it might have perhaps been better for Brazil if the prices of her pro- 
ducts and the profits of her producers had risen more slowly and gradually; 
for exorbitant prices never lead to the establishment of a permanent com- 
mercial intercourse; it is better to gain by the multiplication of one's own 
products than by their increased price. 

j"If the barren consumption of a product be of itself adverse to repro- 
duction, and a diminution j5ro tanto of Jhe existing demand or vent for pro- 
duce, how shall we designate that degree of insanity, which could induce 
a government deliberately to burn and destroy the imports of foreign pro- 
duce, and thus to annihilate the sole advantage accruing from unproductive 
consumption, that is to say, the gratification of the wants of the consumer? 



84 ON PRODUCTION. book i. 

of buyers, yield the best interest of money to the capitalist, 
the largest profits to the adventurer, and the best wages to the 
labourer; and the agency of their respective services is na- 
turally attracted by these advantages towards those particular 
channels. 

In a community, city, province, or nation, that produces 
abundantly, and adds every moment to the sum of its products, 
almost all the branches of commerce, manufacture, and gene- 
rally of industry, yield handsome profits, because the demand 
is great, and because there is always a large quantity of pro- 
duce in the market, ready to bid for new productive services. 
And, vice versa, wherever, by reason of the blunders of the 
nation or its government, production is stationary, or does not 
keep pace with consumption, the demand gradually declines; 
the value of the products is less than the charges of their pro- 
duction; no productive exertion is properly rewarded; profits 
and wages decrease; the employment of capital becomes less 
advantageous and more hazardous; it is consumed piecemeal, 
not through extravagance, but through necessity, and because 
the sources of profit are dried up.* The labouring classes 
experience a want of work; families before in tolerable circum- 
stances, are more cramped and confined; and those before in 
difficulties, are left altogether destitute. Depopulation, misery, 
and returning barbarism, occupy the place of abundance and 
happiness. 

Such are the concomitants of declining production, which 
are only to be remedied by frugality, intelligence, activity, 
and freedom. 



CHAPTER XVl. 



op THE BENEFITS RESULTING FROM THE BRISK CIRCULATION 
OF MONEY AND COMMODITIES. 

It is common to hear people descant upon the benefits of an 
active circulation; that is to say, of numerous and rapid sales. 
It is material to appreciate them correctly. 

The values engaged in actual production can not be realised 
and employed in production again, until arrived at the last 

* Consumption of this kind gives no encouragement to future production, 
but devours products already in existence. No additional demand can be 
created, until there be new products raised; there is only an exchange of 
one product for another. Neither can one branch of industry suffer with- 
out affecting the rest. 



CHAP. XVI. ON PRODUCTION. 85 

stage of completion, and sold to the consumer. The sooner a 
product is finished off and sold, the sooner also can the portion 
of capital vested in it be applied to the business of fresh pro- 
duction. The capital being engaged a shorter time, there is 
less interest payable to the capitalist; there is a saving in the 
charges of production; it is, therefore, an advantage, that the 
successive operations performed in the course of production 
should be rapidly executed. 

By way of illustrating the effects of this activity of circula- 
tion, let us trace them in the instance of a piece of printed 
calico.* 

A Lisbon trader imports the cotton from Brazil. It is his 
interest, that his factors in America be expeditious in making 
purchases and remitting cargoes, and likewise, that he meet 
no delay in selling his cotton to a French merchant; because 
he thereby gets his returns the sooner, and can sooner recom- 
mence a new and equally lucrative operation. So far, it is 
Portugal that benefits by the increased activity of circulation^ 
the subsequent advantage is on the side of France. If the 
French merchant keep the Brazil cotton but a short time in his 
warehouse, before he sells it to the cotton spinner, if the spin- 
ner after spinning sell it immediately to the weaver, if the 
weaver dispose of it forthwith to the calico printer, and he in 
his turn sell it without much delay to the retail dealer, from 
whom it quickly passes to the consumer, this rapid circulation 
will have occupied for a shorter period the capital embarked 
by these respective producers; less interest of capital will have 
been incurred; consequently, the prime cost of the article will 
be lower, and the capital will have been the sooner disengaged 
and applicable to fresh operations. 

All these different purchases and sales with many others 
that, for brevity's sake, I have not noticed, were indispensa- 
ble before the Brazil cotton could be worn in the shape of print- 
ed calicoes. They are so many productive fashions given to 
this product; and the more rapidly they may have been given, 
the more benefit will have been derived from the production. 
But, if the same commodity be merely sold several times over 
in a year in the same place without undergoing any fresh mo- 
dification, this circulation would be a loss instead of a gain, 
and would increase, instead of reducing the prime cost to the 
consumer. A capital mustbe employed in buying and re-selling, 
and interest paid for its use, to say nothing of the probable 
wear and tear of the commodity. 

Thus, jobbing in merchandise necessarily causes a loss, either 

* The term cii'culation, as Vvrell as many others employed in the science 
of political economy, is daily made use of at random, even by persons that 
pride themselves upon their precision. "The more equally circulation is 
diffused," says La Harpe, in one of his works, "the less indig'ence is to be 
found in the community. " With great deference to the learned academician, 
what possible meaning* can the word circulation have in this passage? 



86 ON PRODUCTION. book i. 

to the jobber, if the price be not raised by transaction, or to 
the consumer, if it be raised.* 

The activity of circulation is at the utmost pitch to which it 
can be carried with advantage, when the product passes into 
the hands of a new productive agent the instant it is fit to re- 
ceive a new modification, and is ultimately handed over to the 
consumer, the instant it has received the last finish. All kind 
of activity and bustle not tending to this end, far from giving 
additional activity to circulation, is an impediment to the 
course of production, — an obstacle to circulation by all means 
to be avoided. 

With respect to the rapidity of production arising from the 
more skilful direction of industry, it is an increase of rapidity, 
not in circulation, but in productive energy. The advantage 
is analogous; it abridges the occupation of capital. 

I have made no distinction between the circulation of goods 
and of money, because there really is none. While a sum of 
money lies idle in a merchant's coffers, it is an inactive portion 
of his capital, precisely of the same nature, as that part of his 
capital which is lying in his warehouse in the shape of goods 
ready for sale. 

The best stimulus of useful circulation is, the natural wish of 
all classes, especially the producers themselves, to incur the 
least possible amount of interest upon the capital embarked in 
their respective undertakings. Circulation is much more apt 
to be interrupted by the obstacles thrown in its way, than by 
the want of proper encouragement. Its greatest obstructions 
are, wars, embargoes, oppressive duties, the dangers and diffi- 
culties of transport. It flags in times of alarm and uncertainty, 
when social order is threatened, and all undertakings are ha- 
zardous. It flags too, under the general dread of arbitrary ex- 
actions, when every one tries to conceal the extent of his 
ability. Finally, it flags in times of jobbing and speculation, 
when the sudden fluctuations caused by gambling in produce 
make people look for a profit from every variation of mere 
relative price: goods are then held back in expectation of a rise, 
and money in the prospect of a fall; and, in the interim, both 
these capitals remain inactive and useless to production. Un- 
der such circumstances, there is no circulation, but of such 
produce as can not be kept without danger of deterioration; as 
fruits, vegetables, grain, and all articles that spoil in the keep- 
ing. With regard to them, it is thought wiser to incur the 
loss of present sale, whatever it be, than to risk considerable 
or total loss. If the national money be deteriorated, it be- 
comes an object to get rid of it in any way, and exchange it 
for commodities. This was one of the causes of the prodi- 

* The trade of speculation, as we have before observed, {supra. Chap. 9.) 
is sometimes of use in withdrawing an article from cii'culation, when its price 
is so low as to discourage the producer, and restoring it to circulation, when 
that price is unnaturally raised upon the consumer. 



CHAP. XVII. ON PRODUCTION. 87 

gious circulation that took place during the progressive depre- 
ciation of the French assigndts. Every body was anxious to 
find some employment for a paper currency, whose value was 
hourly evaporating; it was only taken to be re-invested im- 
mediately, and one might have supposed it burnt the fingers 
it passed through. On that occasion, men plunged into com- 
merce, of which they were utterly ignorant; manufactures 
were established, houses repaired and furnished, no expense 
was spared even in pleasure; until at length all the value each 
individual possessed in assigndts was finally consumed, in- 
vested, or lost altogether. 



CHAPTER XVII. 

OP THE EFFECT OF GOVERNMENT REGULATIONS INTENDED 
TO INFLUENCE PRODUCTION. 

Strictly speaking, there is no act of government but what 
has some influence upon production. I shall confine myself 
in this chapter to such as are avowedly aimed at the exertion 
of such influence; reserving the effects of the monetary sys- 
tem, of loans, and of taxes, to be treated of in distinct chap- 
ters. 

The object of governments, in their attempts to influence 
production, is, either to prescribe the raising of particular 
kinds of produce, which they judge more advantageous than 
others, or to prescribe methods of production, which they 
imagine preferable to other methods. The effects of this two- 
fold attempt upon national wealth will be investigated in the 
two first sections of this chapter: in the remaining two, I shall 
apply the same principles to the particular cases of privileged 
companies, and of the corn-trade,^ both on account of their vast 
importance, and for the purpose of further explaining and il- 
lustrating the principles. We shall see by the way, what rea- 
sons and circumstances will require or justify a deviation from 
general principles. The grand mischiefs of authoritative in- 
terference proceed not from occasional exceptions to establish- 
ed maxims, but from false ideas of the nature of things, and 
the false maxims built upon them. It is then that mischief is 
done by wholesale, and evil pursued upon system: for it is 
well to beware, that no set of men are more bigoted to sys* 
tem, than those who boast that they go upon none.* 

* The greatest sticklers for adhering to practical notions, set out with the 
assertion of general principles : they begin, for instance, with saying, that 



88 ON PRODUCTION. book i. 



SECTION I. 

Effect of Regulations prescribing the Nature of Products, 

The natural wants of society, and its circumstances for the 
time being, occasion a more or less lively demand for particu- 
lar kinds of produce. Consequently, in these branches of pro- 
duction, productive services are somewhat better paid than in 
the rest; that is to say, the profits upon land, capital, and la- 
bour, devoted to those branches of production, are somewhat 
larger. This additional profit naturally attracts producers, 
and thus the nature of the products is always regulated by the 
wants of society. We have seen, in a preceding chapter (xv.), 
that these wants are more ample in proportion to the sum of 
gross production, and that society in the aggregate is a larger 
purchaser, in proportion to its means of purchasing. 

When authority throws itself in the way of this natural 
course of things, and says, the product you are about to cre- 
ate, that which yields the greatest profit, and is consequently 
the most in request, is by no means the most suitable to your 
circumstances; you must undertake some other: it evidently 
directs part of the productive energies of the nation towards 
an object of less desire, at the expense of another object of 
more urgent desire. 

In France, about the year 1794, there were some persons 
persecuted, and even brought to the scafibld, for having con- 
verted corn-land into pasturage. Yet, the moment these un- 
happy people found it more profitable to feed cattle than to 
^row corn, one might have been sure, that society stood more 
in need of cattle than of grain, and that greater value could be 
produced in one way than in the other. 

But, said the public authorities, the value produced is of 
less importance than the nature of the product, and we would 
rather have you raise 50 fr. worth of grain than 100 of butch- 
er's meat. In this they betrayed their ignorance of this 
simple truth, that the greatest product is always the best; and 
that an estate, which should produce in butcher's meat where- 
with to purchase twice as much wheat as could have been 
raised upon it, produces, in reality, twice as much wheat as if 
it had been sowed with grain; since wheat to twice the amount 

no one can dispute the position, that one individual can gain only what 
another loses, and one nation profit onl}^ by the sacrifices of another. 
What is this but system? and one so unsound, that its abettors, instead of 
possessing- more practical knowledge than other people, show their utter 
ignorance of many facts, the acquaintance with which is indispensable to 
the formation of a correct judgment. No man, who understands the real 
nature of production, and sees how new wealth may be, and is daily cre- 
ated, would attempt to advance so gross an absurdity. 



GHAP. XVII. ON PRODUCTION. 89 

is to be got for its produce. This way of getting wheat, they 
will tell you, does not increase its total quantity. True, unless 
it be introduced from abroad; but nevertheless, this article 
must at the time be relatively more plentiful than butcher's 
meat, because the produce of two acres of wheat is given for 
that of one acre of pasture.* And, if wheat be sujfficiently 
scarce, and in sufficient request to make tillage more profita- 
ble than grazing, legislative interference is superfluous alto- 
gether; for self-interest will make the producer turn his atten- 
tion to the former. 

The only question then is, which is the most likely to know 
what kind of cultivation yields the largest returns, the cultiva- 
tor or the government; and we may fairly take it for granted, 
that the cultivator, residing on the spot, making it the object 
of constant study and inquiry, and more interested in success 
than any body, is better informed in this respect than the 
government. 

Should it be insisted upon in argument, that the cultivator 
knows only the price-current of the day, and does not, like 
the government, provide for the future wants of the people, 
it may be answered, that one of the talents of a producer, and 
a talent his own interest obliges him assiduously to cultivate, 
is not the mere knowledge, but the fore-knowledge of human 
wants, t 

An evil of the same description was occasioned, when, at 
another period the proprietors were compelled to cultivate 
beet-root, or woad, in lieu of grain: indeed, we may observe, 
en passant, that it is always a bad speculation to attempt rais- 
ing the products of the torrid, under the sun of the temperate 
latitudes. The saccharine and colouring juices, raised on the 
European soils with all the forcing in the world, are very infe- 
rior in quantity and quality to those that grow in profusion in 
other climates :$ while, on the other hand, those soils yield 
abundance of grain and fruits too bulky and heavy to be im- 
ported from a distance. In condemning our lands to the 
growth of products ill-suited to them, instead of those they are 

* At ttie disastrous period in question, there was no actual want of 
wheat; the growers merely felt a disinclination to sell for paper-money. 
"Wheat was sold for real value at a very reasonable rate; and, thoug-h a 
hundred thousand acres of pasture land had been converted into arable, the 
disinclination to exchange wheat for a discredited paper-money would not 
have been a jot reduced. 

f Of course, in extraordinary cases, like that of a sieg-e or a blockade, 
ordinary rules of conduct must be disregarded. However irksome the ne- 
cessity, violent obstructions to the natural course of human affairs must be 
removed by counteracting- violence; poison is in dangerous cases resorted 
to as a medicine; but these remedies require extreme care and skill in 
the application. 

t M. de Humboldt has remarked, that seven square leag-ues of land in a 
tropical chmate, can furnish as much sug^ar as the utmost consumption of 
France, in its best days, has evcir required. 
19 



'90 ON PRODUCTION. book i. 

better calculated for, and, consequently, buying very dear 
what we might have cheap enough, if we would consent to re- 
ceive them from places where they are produced with advan- 
tage, we are ourselves the victims of our own absurdity. It is 
the very acmi of skill, to turn the powers of nature to the best 
account, and the height of madness to contend against them; 
which is in fact wasting part of our strength, in destroying 
those powers she designed for our aid. 

Again, it is laid down as a maxim, that it is better to buy 
produce dear, when the price remains in the country, than to 
get it cheap from foreign growers. On this point I must refer 
my readers to that analysis of production which we have just 

gone through. It will there be seen, that products are not to 
e obtained without some sacrifice, — without the consumption 
of substances and productive agency in some ratio or other, the 
value of which is in this way as completely lost to the com- 
munity, as if it were to be exported.* 

I can hardly suppose any government will be bold enough 
to object, that it is indifferent about the profit, which might 
be derived from a more advantageous production, because it 
would fall to the lot of individuals. The worst governments, 
those which setup their own interest in the most direct oppo- 
sition to that of their subjects, have by this time learnt, that 
the revenues of individuals are the regenerating source of pub- 
lic revenue; and that, even under despotic and military sway, 
where taxation is mere organized spoliation, the subjects can 
pay only what they have themselves acquired. 

The maxims we have been applying to agriculture accord 
equally with manufacture. Sometimes a government enter- 
tains a notion, that the manufacture of a native raw material is 
better for the national industry, than the manufacture of a 
foreign raw material. It is in conformity to this notion, that 
we have seen instances of preference given to the woollen and 
linen above the cotton manufacture. By this conduct we con- 
trive, as far as in us lies, to limit the bounty of nature, who 
pours forth in different climates a variety of materials adapted 
to our innumerable wants. Whenever human efforts succeed 

* In the sequel of this chapter, it will be shown, that values exported give 
precisely the same encourag'ement to domestic industiy, as if they are con- 
sumed at home. In the instance just cited, suppose that wine" had been 
grown instead of the sugar of beet-root, or the blue dye of woad, the do- 
mestic and agi-icultural industry of the nation would have been quite as 
much encouraged. And, since the product would have been more conge- 
nial to the climate, the wine produced from the same land would have pro- 
cured a larger quantity of colonial sugar and indigo through the cliannel of 
commerce, even if conducted by neutrals or enemies. Tlie colonial sugar 
and indigo would have been equally the product of our own land, tliough 
first assuming the shape of wine; only the s:'.me space of land would have 
produced them in superior quantity and quality. And the encouragement 
to domestic industry would be the same, or rather would be greater; be- 
cause a product of superior value would reward more amply the agency of 
the laud, capital, and industry, engaged in the production. 



CHAP. XVII. ON PRODUCTION. 91 

in attaching to these gifts of nature a value, that is to say. a 
degree of utility, whether by their import, or by any modifi- 
cation we may subject them to, an useful act is performed, 
and an item added to national wealth. The sacrifice we make 
to foreigners in procuring the raw material is not a whit more 
to be regretted, than the sacrifice of advances and consumption, 
that must be made in every branch of production, before we 
can get a new product. Personal interest is, in all cases, the 
best judge of the extent of the sacrifice, and of the indemnity 
we may expect for it; and, although this guide may some- 
times mislead us, it is the safest in the long run, as well as the 
least costly.* 

But personal interest is no longer a safe criterion, if indi- 
vidual interestsare not left to counteract and control each other. 
If one individual, or one class, can call in the aid of authority 
to ward off the effects of competition, it acquires a privilege 
to the prejudice and at the cost of the whole community; it 
can then make sure of profits not altogether due to the produc- 
tive services rendered, but composed in part of an actual tax 
upon consumers for its private profit; which tax it commonly 
shares with the authority, that thus unjustly lends its support. 

The legislative body has great difficulty in resisting the im- 
portunate demands for this kind of privileges; the applicants 
are the producers that are to benefit thereby, who can repre- 
sent, with much plausibility, that their own gains are a gain 
to the industrious classes, and to the nation at large, their 
workmen and themselves being members of the industrious 
classes, and of the nation.! 



* One is obliged every moment to turn round and combat objections, tbat 
never could have been started, if the science of Political Economy had been 
more widely diffused. It will here, for instance, in all probability, be said, 
— granting that the sacrifice made in the purchase of the raw flax for manu- 
facture, and that made in the purchase of cotton, is to the manufacturer or 
mei'chant equal in the one case and the other, — still, in the one case, the 
amount of the sacrifice is expended and consumed in the nation itself, and 
conduces to the national advantage; in the other, the whole advantage goes 
to the foreign grower. I answer, the advantage goes to the nation in either 
case; for the foreign i-aw material, cotton, can not be purchased, except 
with a domestic product, which must be bought of the national grower be- 
fore the merchant can go to market; whether flax or any thing else, it must 
be some value of domestic creation. Why may be not buy with money f" 
Money itself must have been originally purchased with some other product, 
which must have occupied domestic industi'y, as much as the growth of 
flax. Turn it which way you Vv-ill, it comes to the same thing- in the end. 
Wealth can only be acquired by the production of value, or lost by its con- 
sumption; and, putting absolute robbery out of the question, the whole con- 
sumption of a nation must always be supplied from its internal resoui-ces, 
its land, capital, and industry, even that portion of it which falls upon ex- 
tei'nal objects. 

-j-No one cries out against them, because very few know who it is that 
pays the gains of the monopolist. The real sufferers, the consumers them- 
selves, often feel the pressure, without being aware of the caiise of it, and 



93 ON PRODUCTION. book. i. 

When the cotton manufacture was first introduced in France, 
all the merchants of Amiens, Rheims, Beauvais, &c. joined in 
loud remonstrances, and represented, that the industry of these 
towns was annihilated. Yet they do not appear less industri- 
ous or rich than they were fifty years ago; while the opulence 
of Rouen and all Normandy has been wonderfully increased 
by the new fabric. 

The outcry was infinitely greater, when printed calicoes 
first came into fashion; all the chambers of commerce were up 
in arms; meetings, debates, were every where held; memorials 
and deputations poured in from every quarter, and great sums 
were spent in the opposition. Rouen now stood forward to 
represent the misery about to assail her, and painted, in moving 
colours, "old men, women, and children, rendered destitute; 
the best cultivated lands in the kingdom lying waste, and the 
whole of a rich and beautiful province depopulated. " The city 
of Tours urged the lamentations of the deputies of the whole 
kingdom, and foretold " a commotion that would shake the 
frame of social order itself." Lyons could not view in silence 
a project "which filled all her manufactories with alarm." 
Never on so important an occasion had Paris presented itself 
at the foot of a throne, " watered with the tears of commerce." 
Amiens viewed the introduction of printed calicoes as the gulf, 
that must inevitably swallow up all the manufactures of the 
kingdom. The memorial of that city, drawn up at a joint 
meeting of the three corporations, and signed unanimously, 
ended in these terms: ' To conclude, it is enough for the eter- 
nal prohibition of the use of printed calicoes, that the whole 
kingdom is chilled with horror at the news of their proposed 
toleration. Vox populi, vox del.' 

Hear what Roland de la Plati^re, who had the presentation 
of these remonstrances in quality of inspector-general of manu- 
factures, says on this subject, ' Is there a single individual at 
the present moment, who is mad enough to deny, that the 
fabric of printed calicoes employs an immense number of 
hands, what with the dressing of cotton, the spinning, weaving, 
bleaching, and printing? This article has improved the art of 
dyeing in a few years, more than all the other manufactures 
together have done in a century.' 

I must beg my readers to pause a moment, and reflect, wTiat 
firmness and extensive information respecting the sources of 
public prosperity were necessary to uphold an administration 
against so general a clamour, supported, amongst the principal 
agents of authority, by other motives, besides that of public 
utility. 

Though governments have too often presumed upon their 
power to benefit the general wealth, by prescribing to agricul- 
ture and manufacture the raising of particular products, they 

are the first to abuse the enlightened hidividuals, who are really advocating 
their interests. 



CHAP. XVII. ON PRODUCTION. 93 

have interfered much more particularly in the concerns of 
commerce, especially of external commerce. These bad con- 
sequences have resulted from a general system, distinguished 
by the name of the exclusive or commercial system,, which 
attributes the profits of a nation to what is technically called, 
a favourable balance of trade. Before we enter upon the 
investigation of the real effect of regulations, intended to se- 
cure to a nation this balance in its favour, it may be as well to 
form some notion what it really is, and what is its professed 
object; which 1 shall attempt in the following 

DIGRESSION 
UPON WHAT IS CALLED THE BALANCE OP TRADE. 

The comparison a nation makes between the value of its ex- 
ports to, and that of its imports from foreign parts, forms what 
is called the balance of its trade. If it have exported more 
commodities than it has imported, it is taken for granted that 
the nation has to receive the difference in gold or silver; and 
the balance of trade is then said to be in its favour; and when 
the case is reversed, the balance is said to be against it. 

The exclusive system proceeds upon these maxims: 1. That 
the commerce of a nation is advantageous, in proportion as its 
exports exceeds its imports, and as there is a larger cash ba- 
lance receivable in specie, or in the precious metals: 2. That, 
by means of duties, prohibitions, and bounties, the govern- 
ment can make that balance more in favour of, or less against, 
the nation. 

These two maxims must be analysed minutely: in the first 
place, then, let us see what is the course of practice. 

When a merchant sends goods abroad, he causes them to be 
there sold, and receives by the hands of his correspondents 
there, the price of his goods, in the money of the country. If 
he expects to make a profit upon the return cargo, he causes 
that price to be laid out in foreign produce, and remitted home 
to him. The operation is with little variation the same, when 
he begins at the other end; that is to say, by making purchases 
abroad, which he pays for by remitting home produce thither. 
These operations are not always executed on account of the 
same merchant. It sometimes happens that the trader, who 
undertakes the outward, will not undertake the homeward ad- 
venture. In that case he draws bills at date, or upon sight, up- 
on his correspondents, by whom the goods have been sold: 
these bills he sells or negotiates, to somebody, who sends them 
to the place they are drawn upon, where they are made use of 
in the purchase of fresh goods, which the last mentioned per- 
son imports himself.* 

* What has been said of one trader, may be said equally of two — three, 
—in short, of all the traders in the nation. As far as concerns the balance 



94 ON PRODUCTION. book i. 

In both cases, one value is exported, another value is im- 
ported in return; but we have not stopt to inquire, if any part 
of the value either exported or imported consisted of the pre- 
cious metals. It may reasonably be assumed, that merchants, 
when left the free choice of what goods they will speculate in, 
will prefer those that offer the largest profit; that is to say, 
those which will bear the greatest value when they arrive at 
the place of destination. For example, a French merchant 
has consigned brandies to England, and has to receive from 
England for such his consignment, 1000/, sterling: he natural- 
ly sits down to calculate the difference between what he will 
receive, if he import his 1000/. in the shape of the precious 
metals, and what He will receive, if he import that sum in the 
shape of cotton manufactures.* 

of commerce, the operations of the whole will resolve themselves into what 
I have just stated. Individual losses may occur on either side, from the fol- 
ly or knavery of some few of the ti-aders engag-ed; but we may take it for 
granted, that they will, on the average, be inconsiderable, in compari- 
son with the total of business done: at all events, the losses on the one side 
will commonly balance those on the other. 

It is of very little importance to our purpose to inquire, by whom the 
charge of transport is borne: usually, the English trader pays the freight of 
the goods he buys, and imports from France, and the French trader does 
the like upon his purchases from England; both of them look for the reim- 
bursement of this outlay to the value added to the articles by the circum- 
stance of transport. 

* It may be well here to point out a manifest blunder of some partisans 
of the exclusive system. They look upon nothing that a nation receives 
from abroad as a national gain, except what is received in the form of spe- 
cie; which is in effect to maintain, that a hatter, who sells a hat for 24^ jr., 
gains the whole 24: fr., because he receives it in specie. But this can not 
be: money, like other things, is itself a commodity. A French merchant 
consigns to England brandies to amount of 20,000 fr.: his commodity was 
equivalent in France to that sum in specie; if it sell in England for 1000/. 
sterling, and that sum remitted in gold or silver be worth 24,000 _/>;, there 
is a gain of 4000yr. only, although France has received 24, 000 /r. in specie. 
And, should the merchant lay out his 1000/. sterling in cotton goods, and 
be able to sell them in France for 28,000 _/r. there would then be a gain to 
the importer and to the nation of 8000 /r., although no specie whatever had 
been brought into the country. In short, the gain is precisely the excess of 
the value received above the value given for it, whatever be the form in 
which the import is made. 

It is curious enough, that the more lucrative external commerce is, the 
greater must be the excess of the import above the export; and that the 
ver}' thing, which the partisans of the exclusive system deprecate as a ca- 
lamity, is of all things to be desired. I will explain why. When there has 
been an export of 10, and an import in return of 11 millions, there is in the 
nation a value of 1 million more than before the interchange. And, in 
spite of the specious statements of the balance of commerce, this must al- 
most always be so, otherwise the traders would gain nothing. In fact, the 
value of the export is estimated at its value before shipment, which is in- 
creased by the time it reaches the destination: with this augmented value 
the return is purchased, which also receives a like accession of value by the 
transport. The value of tliis import is estimated at the time of entry. 'I'hus, 
the result is the presence of a value equal to that exported, plus the gains. 



CHAP. XVII. ON PRODUCTION, 95 

If the merchant find it more advantageous to get his returns 
in goods than in specie, and if it be admitted, that he knows 
his own interest better than any body else, the sole point left 
for discussion is, whether returns in specie, though less ad- 
vantageous to the merchant, may not be better for the nation, 
than returns of any other article: whether, in short, it be de- 
sirable in a national point of view, that the precious metals 
should abound, in preference to any other commodity. 

What are the functions of the precious metals in the com- 
munity? If shaped into trinkets or plate, they serve for per- 
sonal ornament, for the splendour of our domestic establish- 
ments, or for a variety of domestic purposes; they are con- 
verted into watch-cases, spoons, forks, dishes, coffee-pots; or 
rolled out into leaves for the embellishment of picture-frames, 
book-binding, and the like; in which case, they form part of 
that portion of the capital of the community, which yields no 
interest, but is devoted to the production of utility or pleasure. 
It is doubtless an advantage to the nation, that the material, 
whereof this portion of its capital consists, should be cheap 
and abundant. The enjoyment they afford in these various 
ways is then obtained at a lower rate, and is more widely dif- 
fused. There are many establishments on a moderate scale, 
which, but for the discovery of America, would have been 
unable to make the show of plate that is now seen upon their 
tables. But this advantage must not be over-rated; there are 
other utilities of a much higher order. The window-glass, 
that keeps out the inclemency of the weather, is of much more 
importance to our comfort, than any species of plate whatso- 
ever; yet no one has ever thought of encouraging its import or 
production by special favour or exemptions. 

The other utility of the precious metals is^ to act as the ma- 
outward and homeward. Wherefore, in a thriving country, the vahie of 
the total imports should always exceed that of the exports. What then are 
we to think of the Report of the French Minister of the Interior of 1813, 
who makes the total exports to have been 383 millions o? francs, and the 
total imports inclusive of specie, but 350 millions; a statement upon which 
he felicitates the nation, as the most favourable that had ever been present- 
ed. Whereas, this balance shows, on the contrary, what every body felt and 
knew, that the commerce of France was then making- immense losses, in 
consequence of the blunders of her administration, and the total ignorance 
of the first principles of Political Economy. 

In a tract upon the kingdom of Navarre in Spain. (^Annates des Voyages, 
tom. i. p. 312.) I find it stated, that, on comparison of the value of the ex- 
ports with that of the imports of that kingdom, there is found to be an annu- 
al excess of the former above the latter of 600,000 /r. Upon which the au- 
thor very sagely observes, "that, if there be one trutli more indisputable 
than another, it is this, that a nation which is growing rich can not be im- 
porting more than it is exporting; for tlien its capital m.ust diminish per- 
ceptibly. And, since Navarre is in a state of gradual improvement, as ap- 
pears from the advance of population and comfort, it is cleai' — ," that I 
know nothing about the matter, he might have added; " — for I am citing- 
an established fact to give the lie to an indisputable principle." We are 
every day witnessing contradictions of the same kind. 



96 ON PRODUCTION. book i. 

terial of money, that is to say, of that portion of the national 
capital, which is employed in facilitating the interchange of 
existing values between one individual and another. For this 
purpose, is it any advantage, that the material selected should 
be abundant and cheap? Is a nation, that is more amply pro- 
vided with that material, richer than one which is more scan- 
tily supplied? 

I must here take leave to anticipate a position, established 
in chap. 21 of this book, wherein the subject of money is con- 
sidered: viz. that the total business of national exchange and 
circulation, requires a given quantity of the commodity, mo- 
ney, of some amount or other. There is in France a daily sale 
of so much wheat, cattle, fuel, property moveable and im- 
moveable, which sale requires the daily intervention of a given 
value in the form of money, because every commodity is first 
converted into money, as a step towards its further conver- 
sion into other objects of desire. Now, whatever be the rela- 
tive abundance or scarcity of the article money, since a given 
quantum is requisite for the business of circulation, the mo- 
ney must of course advance in value, as it declines in quantity, 
and decline in value as it advances in quantity. Suppose the 
money of France to amount now to 3000 millions oi francs, 
and that by some event, no matter what, it be reduced to 1500 
millions; the 1500 millions will be quite as valuable as the 
3000 millions. The demands of circulation require the agency 
of an actual value of 3000 millions; that is to say, a value 
equivalent to 2000 millions of pounds of sugar, (taking sugar 
at 30 sous per lb.) or to 180 millions of hectolitres of wheat 
(taking wheat at 20 fr. the hectolitre.) Whatever be the 
weight or bulk of the material, whereof it is made, the total 
value of the national mono)'- will still remain at that point; 
though, in the latter case, that material will be twice as valua- 
ble as in the former. An ounce of silver will buy eight in- 
stead of four lbs. of sugar, and so of all other commodities; 
and the 1500 millions of coin will be equivalent to the former 
3000. But the nation will be neither richer nor poorer than 
before. A man, who goes to market with a less quantity of 
coin, will be able to buy with it the same quantity of com- 
modoties. A nation that has chosen gold for the material of 
its money, is equally rich with one that has made choice of 
silver, though the volume of its money be much less. Should 
silver become fifteen times as scarce as at present, that is to 
say, as scarce as gold now is, an ounce of silver would per- 
form the same functions, in the character of money, as an 
ounce of gold now does; and we should be equally rich in mo- 
ney. Or, should it fall to a par with copper, we should not 
he a jot the richer in the article of money; we should merely 
be encumbered with a more bulky medium of circulation. 

On the score, then, of the other utilities of the precious 
metals, and on that score only their abundance makes a nation 
richer, because it extends the sphere of those utilities, and 



CHAP. XVII. ON PRODUCTION. .97 

diffuses their use. In the character of money, that abundance 
no wise contributes to national enrichment;* but the habits of 
the vulgar lead them to pronounce an individual rich, in 
proportion to the quantity of money he is possessed of; and 
this notion has been extended to national wealth, which is 
made up of Jthe aggregate of individuals' wealth. Wealth, 
however, as before observed, consists, not in the matter or 
substance, but in the value of that matter or substance. A 
money of large, is worth no more than a money of small 
volume; neither is a money of small, of less value, than one of 
large volume. Value, in the form of commodities, is equiva- 
lent to value to the same amount in the form of money. 

It may be asked, why, then, is money so generally preferred 
to commodities, when the value on both sides is equal? This 
requires a little explanation. When I come to treat of mone^', 
it will be shown, that coined metal of equal value commands 
a preference, because it ensures to the holder the attainment 
01 the objects of desire by means of one exchange instead of 
two. He is not, like the holder of any other commodity, 
obliged, in the first instance, to exchange his own commodity, 
money, for the purpose of obtaining, oy a second exchange, 
the object of his desire; one act of exchange suffices; and this 
it is, combined with the extreme facility of apportionment, 
afforded by graduated denominations of the coin, which ren- 
ders it so useful in exchanges of value. Every individual, 
who has an exchange to make, becomes a consumer of the 
commodity, money; that is to say, every individual in the com- 
munity; which accounts for the universal preference of money 
to commodities at large, where the value is equal. 

But this superiority of money, in the interchange between 
individuals, does not extend to that between nation and na- 
tion. In the latter, money, and, a fortiori, bullion, lose all 
the advantage of their peculiar character as money, and are 

* It is a necessary inference from these positions, that a nation gains in 
wealth by tlie partial export of its specie, because the residue is of equal 
value to the total previous amount, and the nation receives an equivalent 
for the portion exported. How is this to be accounted for? By the pecu- 
liar property of money to exhibit its utility in the exercise, not of its physi- 
cal or material qualities, but those of its value alone. A less quantity of 
bread will less satisfy the cravings of hunger; but a less quantity of money 
may possess an equal amount of utility; for its value augments with the ili- 
minution of its volume, and its value is the sole ground of its employment. 

Whence it is evident, that governments should shape their coui'se in the 
opposite direction to that pursued at present, and encourage, instead of 
discouraging, the export of specie. And so they assuredly will, whentliey 
shall understand their business better: or rather, they will attempt neitljer 
the one nor the other; for it is impossible, that any considerable poi-tion of 
the national specie can leave the country, without raising the value of tlie 
residue. And, when it is raised, less of it is given in exchange for commo- 
dities, which are then low in price, so as to make it advantageous again to 
import specie and export commodities; by whicli action and reaction the 
quantity of the precious metals is, \\\ spite of all regulations, kept prctl> 
nearly at the amount required by the wants of the nation. 

20 



98 ON PRODUCTION. book i. 

dealt with as mere commodities. The merchant, who has re- 
mittances to make from abroad, looks at nothing but the gain 
to be made on those remittances, and treats the precious metals 
as a commodity he can dispose of with more or less benefit. 
In his eyes, an exchange more or less is no object; for it is his 
business to negotiate exchanges, so as to get a profit upon them. 
An ordinary person might prefer to receive money instead of 
goods, because it is an article, whose value he is better ac- 
quainted with: but a merchant, who is apprised of the prices 
current in most of the markets of the world, knows how to ap- 
preciate the value he receives in return, whatever shape it may 
appear under. 

An individual may be under the necessity of liquidating, 
for the purpose of giving a new direction to his capital, or of 
partition, or the like. A nation is never obliged to do so. 
This liquidation is effected with the circulating money of the 
nation, which it occupies only for the time: the same money 
going almost immediately to operate another act of liquidation 
or of exchange. 

We have seen above (Chap. 15.) that the abundance of specie 
is not even necessary for the national facilitation of exchanges 
and sales; for that buyers really buy with products, — each 
with his respective portion of the products he has concurred 
in creating: that with this he buys money, which serves but 
to buy some further product; and that, in this operation, mo- 
ney affords but a temporary convenience; like the vehicles 
employed to convey to market the produce of a farm, and to 
bring back the articles that have been purchased with the pro- 
duce. Whatever amount of money may have been employed 
in the purchase or liquidation, it has passed for as much as it 
was taken for: and, at the close of the transaction, the indivi- 
dual is neither richer nor poorer. The loss or profit arises out 
of the nature of the transaction itself, and has no reference to 
the medium employed in the course of it. 

In no one way do the causes, that influence individual pre- 
ference of money to commodities, operate upon international 
commerce. When the nation has a smaller stock than its ne- 
cessities require, its value within the nation is raised, and fo- 
reign and native merchants are equally interested in the im- 
portation of more: when it is redundant, its relative value to 
commodities at large is reduced, and it becomes advantageous 
to export to that spot, where its command of commodities may 
be greater than at home. To retain it by compulsory mea- 
sures, is to force individuals to keep what is a burthen to them.* 

* No one but an entire stranger to these matters would here be inclined 
to object, that money can never be burtliensome, and is always disposed of 
easily enough. So it may be, indeed, by such as are content to throw its 
value away altogether, or at least, to make a disadvantageous exchange. 
A confectioner may give away his sugar-plums, or eat them himself; but in 
that case, he loses the value of them. It should be observed, that the 
abundance of specie is compatible with national miserj^; for the monej', that 



CHAP. XVII. ON PRODUCTION. 99 

And here I might, perhaps, now dismiss the subject of the 
balance of trade: but such is the prevailing ignorance on this 
topic, and so novel are the views I have been taking, even to 
persons of the better class, to writers and statesmen of the 
purest intentions and well informed on other points, that it 
may be worth while to put the reader on his guard against 
some fallacies, which are often set up in opposition to liberal 
principles, and are unfortunately the ground-work of the po- 
lity of most of the European States. I shall uniformly reduce 
the objections to the simplest terms possible, that their weight 
may be the more easily estimated. 

It is said, that, by increasing the currency througli the 
means of a favourable balance of trade, the total capital of a 
nation is augmented; and, on the contrary, by diminishing it, 
that capital is reduced. But it must be always kept in mind, 
that capital consists, not of so much silver or gold, but of the 
values devoted to reproductive consumption, which values ne- 
cessarily assume an infinite variety of successive forms. When 
it is intended to vest a given capital in any concern, or to 
place it out at interest, the first step is undoubtedly to realise 
to that amount, by converting into ready money the different 
values one has at command. The value of the capital, thus 
assuming the transient form of money, is quickl}'^ transmuted 
by one exchange after another into buildings, works, and 
perishable substances requisite for the projected adventure. — 
The ready money employed for the occasion passes again into 
other hands, for the purpose of facilitating fresh exchanges, 
as soon as it has accomplished its momentary duty; in like 
manner as do many other substances, the shape of which this 
capital successively assumes. So that the value of capital is 
neither lost nor impaired by parting with its value, whatever 
material shape it happens to be under, provided that we part 
with it in a way that ensures its renovation. 

Suppose a French dealer in foreign commodities to consign 
to a foreign country a capital of lOOjOOO/?'. in specie for the 
purchase of cotton; when his cotton arrives, he possesses 
lOOjOOOyr. value in cotton instead of specie, putting nis profit 
out of the question for the moment. Has any body lost this 
amount of specie? Certainly not: the adventurer has come 
honestly by it. A cotton manufacturer gives cash for the 
cargo; is he the loser of the price? No, surely: on the con- 
trary, the article in his hands will increase to twice its value, 
so as to leave him a profit, after repaying all his advances. — 
If no individual capitalist has lost the 100,000 fr. exported, 
how can the nation have lost them? The loss will fall on the 



goes to buy bread, must have been boug-ht itself with other products. And, 
when production has to contend with adverse circumstances, individuals are 
in great distress for money, not because that article is scarce, which often- 
times it is not, but because the ci'eation of the products, wherewith it is 
procurable, can not be eHiscted with advantage. 



100 ON PRODUCTION. book. i. 

consumer, they will tell you: in fact, all the cotton goods 
bought and consumed will be so much positive loss; but the 
same consumers might have consumed linens or woollens of 
exactly the same value without a centime of the 100,000 fr. 
being sent out of the country, and yet there would equally be 
a loss or consumption to that amount of value. The loss of 
value we are now speaking of is not occasioned by the export, 
but by the consumption, which might have taken place with- 
out any export whatever. I may, therefore, say, with strict 
attention to truth, that the export of the specie has caused no 
loss at all to the nation.* 

It has been urged, with much confidence, that, had the ex- 
port of 100,000 yr. never been made, France would remain in 
possession of that additional value; in fact, that the nation has 
lost the amount twice over; first, hj the act of export; second- 
ly, by that of consumption: whereas, the consumption of an 
indigenous product would have entailed a single loss only. 
But I answer as before, that the export of specie has occa- 
sioned no loss; that it was balanced by equivalent value im- 
ported; and that it is so certain, that nothing more has been 
lost, than the 100,000 fr. worth of imported commodities, 
that I defy any one to point any other losers than the consum- 
ers of those commodities. If there have been no loser, it is 
clear there can have been no loss. 

Would you put a stop to the emigration of capital? It is 
not to be prevented by keeping specie in the country. A man 
resolved to transfer his capital elsewhere can do it just as ef- 

*-A merchant's ledger for two successive years may show him richer at 
the end of the second, than at the end of the first, although possessed of a 
smaller amount of specie. Suppose the first year's amount to stand 
thus: — 

Francs. 
Ground and buildings ..... 40,000 

Machinery and moveables 20,000 

Stock in hand 15,000 

Balance of good credits ...... 5,000 

Cash 20,000 

Total 100,000 
And the second year's thus: — • 

Ground and buildings 40,000 

Machinery and moveables ..... 25,000 

Stock in hand ....... 30,000 

Balance of good credits 10,000 

Cash - " - . - . . . . . 5,000 

Total 110,000 

Exhibiting an increase of 10,000 /y., although his cash be reduced to one 
quarter of the former amount. 

A similar account, differing only in the ratios of the different items, 
might be made out for the whole of the individuals in the community, 
who would then be evidently richer, though possessed of much less specie 
or c;ish. 



CHAP. XVII. ON PRODUCTION. 101 

fectually by the consignment of goods, whose export is per- 
mitted.* So much the better we may be told; for our manu- 
facturers will benefit by the exports. True; but their value 
exists no longer in the nation, since they bring back no return 
wherewith to make new purchases; there has been a transfer 
of so much capital from amongst you, to give activity, not to 
your own, but to some other nation's industry. This is a real 
ground of apprehension. Capital naturally flows to those 
places, that hold out security and lucrative employment, and 
gradually retires from countries offering no such advantages: 
but it may easily enough retire, without being ever converted 
into specie. 

If the export of specie causes no diminution of national 
capital, provided it be followed by a corresponding return, on 
the other hand, its import brings no accession of capital. For, 
in reality, before specie can be imported, it must have been 
purchased by an equivalent value exported for that purpose. 

On this point it has been alleged, that, by sending abroad 
goods instead of specie, a demand is created for goods, and the 
producers enabled to make a profit upon their production. I 
answer, that, even when specie is sent abroad, that specie 
must have been first obtained by the export of some indi- 
genous product; for, we may rest assured, that the foreign 
owner of it did not give it to the French importer for nothing; 
and France had nothing to offer in the first instance but her 
domestic products. If the supply of the precious metals in 
the country be more than sufficient for the wants of the coun- 
try, it is a fitter object of export than another commodity; and, 
if more of the specie be exported than the excess of the supply 
above the demand for the purposes of circulation, we may 
calculate with certainty, that, since the value of specie must 
have been necessarily raised by the exportation, other specie 
will be imported to replace what has been withdrawn; for the 
purchase of which last, home products must have been sent 
abroad, which will have yielded a profit to the home pro- 
ducers. In a word, every value sent out of France, for the 
purchase of foreign returns for the French market, may be 
resolved into a product of domestic industry, given either 
first or last, for France has nothing else to procure them with, 

Again, it has been argued, that it is better to export con-^ 
sumable articles, as for instance, manufactures, and to keep at 
home those products not liable to consumption, or, at least, not 
to quick consumption, such as specie. Yet objects of quick 
consumption, if more in demand, are more profitable to keep 
than objects of slower consumption. It would often be doing 
a producer a very poor service, to make him substitute a 

* The transfer of capital by bills on foreig-n countries, comes precisely to 
the same thing. It is a mere substitute in place of the individual making 
the expoi't of commodities, who transfers his right to receive their proceeds, 
the value of which remains abroad. 



102 ON PRODUCTION. book i. 

quantity of commodities of slow consumption for an equal por- 
tion of his capital of more rapid consumption. If an ironmaster 
were to contract for the delivery to him of a quantity of coal 
at a day certain, and when the day came the coal should not 
be procurable, and he should be offered the value in money in 
its stead, it would be somewhat difficult to convince him of the 
service done him by the delivery of money; which is an ob- 
ject of much slower consumption than the coal he contracted 
for. Should a dyer send an order for dyeing woods from 
abroad, it would be a positive injury to send him gold, on the 
plea, that, with equal value, it has the advantage of greater 
durability. He had no occasion for a durable article what- 
ever; what he wanted was a substance, which, though decom- 
posed in his vats, would quickly re-appear in the colours of 
his stuffs.* 

If it were no advantage to import any but the most durable 
items of productive capital, there are other very durable ob- 
jects, such as stone or iron, that ought to share in our partiality 
with silver and gold. But the point of real importance is, the 
durability, not of any particular substance, but of the value of 
capital. Now the value of capital is perpetuated, notwithstand- 
ing the repeated change of the material shape in which it is 
vested. Nay, it can not yield either interest or profit, unless 
that shape be continually varied. To confine it to the single 
shape of money would be to condemn it to remain unproduc- 
tive. 

But I will go a step further, and, having shown that there is 
no advantage in importing gold and silver more than any other 
article of merchandise, I will assert, that, supposing it were 
desirable to have the balance of trade always in our favour, 
yet it is morally impossible it should be so. 

Gold and silver are like all the other substances that, united, 
compose national wealth; they are useful to the community no 
longer than while they do not exceed the national demand for 
them. Any such excess must make the sellers more nume- 
rous than the bidders; consequently, must depress the price 
in proportion, and thus create a powerful inducement to buy 
in the home market, in the expectation of making a profit up- 
on the export. This may be illustrated by an example. 

Suppose for a moment the internal traffic and national wealth 
of a given country to be such, as to require the constant em- 
ploy of a thousand, carriages of different kinds. Suppose too, 
that, by some peculiar system of commerce, we should suc- 

* In Booklir., which treats of consumption, it will be seen, that the 
slower kinds of unproductive consumption are preferable to the moi'e rapid 
ones. But, in the reproductive branch, the more rapid are the better; be- 
cause, the more quickly the reproduction is effected, the less charge of 
interest is incurred, and the oftener the same capital can repeat its pro- 
ductive agency. The rapidity of consumption, moreover, does not affect 
external prodvicts in particular; its disadvantages are equal, whether the 
product be of home or foreign growth. 



CHAP. XVII. ON PRODUCTION. 103 

ceed in getting more carriages annually imported, than were 
annually destroyed by wear and tear; so that, at the year's 
end, there should be 1500 instead of 1000; is it not obvious, 
that there would be in that case 500 lying by in the reposito- 
ries quite useless, and that the owners of them, rather than 
suffer their value to lie dormant, would undersell each other, 
and even smuggle them abroad if it were practicable, in the 
hope of turning them to better account? In vain would the 
government conclude commercial treaties for the encourage- 
ment of their import: in vain would it expend its efforts in 
stimulating the export of other commodities, for the purpose 
of getting returns in the shape of carriages; the more the 
public authorities favoured the import, the more anxious would 
individuals be to export. 

As it is with carriages, so is it with specie likewise. The 
demand is limited: it can form but a part of the aggregate 
wealth of the nation. That wealth can not possibly consist 
entirely of specie, for other things are requisite besides specie. 
The extent of the demand for that peculiar article is propor- 
tionate to the general wealth; in the same manner, as a great- 
er number of carriages is wanted in a rich than in a poor coun- 
try. Whatever brilliant or solid qualities the precious metals 
may possess, their value depends upon the use made of them, 
and that use is limited. Like carriages, they have a value 
peculiar to them; a value that diminishes in proportion to the 
nicrease of their relative plenty, in comparison with the ob- 
jects of exchange, and increases in proportion to their rela- 
tive scarcity. 

One is told, that every thing may be procured with gold or 
silver. True; but upon what terms? The terms are less ad- 
vantageous, when these metals are forcibly multiplied beyond 
the demand; hence their strong tendency to emigration under 
such circumstances. The export of silver from Spain was pro- 
hibited; yet Spain supplied all Europe with it. In 1812, the 
paper money of England having rendered superfluous all the 

fold money of that country, and made that metal too abun- 
ant for its other and remaining uses, its relative value fell, and 
her guineas emigrated to France, in spite of the ease with 
which the coasts of an island may be guarded, and of the de- 
nunciation of capital punishment against the exporters. 

To what good purpose, then, do governments labour to turn 
the balance of commerce in favour of their respective nations? 
To none whatever; unless, perhaps, to exhibit the show of 
financial advantages, unsupported by fact or experience. * — 

* The returns of Bi-itish commerce from the commencement of the 18th 
century down to the establishment of the existing paper money of that na- 
tion, show a regular annual excess, more or less, received by Great Britain 
in the shape of specie, amounting- altogether to the enormous total of 347" 
milhons sterling (more than 6000 milhons of/ra«C5.J Iftothisbe added 
the specie already in Great Britain at the outset, England ought to have 



104 ON PRODUCTION. book i. 

How can maxims so clear, so agreeable to plain common sense, 
and to facts attested by all who have made commerce their 
study, have yet been rejected in practice by all the ruling 
powers of Europe,* nay, even have been attacked by a num- 
ber of writers, that have evinced both genius and information 
on other subjects? To speak the truth, it is because the first 
principles of political economy are as yet but little known; be- 
cause ingenious systems and reasonings have been built upon 
hollow foundations, and taken advantage of, on the one hand, 
by interested rulers, who employ prohibition as a weapon of 
offence or an instrument of revenue; and, on the other, by the 
personal avarice of merchants and manufacturers, who have a 
private interest in exclusive measures, and take but little 
pains to inquire, whether their profits arise from actual pro- 
duction, or from a simultaneous loss thrown upon other classes 
of the community. 

A determination to maintain a favourable balance of trade, 
that is to say, to export goods and receive returns of specie, is, 
in fact, a determination to have no foreign trade at all; for the 
nation, with whom the trade is to be carried on, can only give 
in exchange what it has to give. If one party will receive no- 
thing but the precious metals, the other party may come to a 
similar resolution; and, when both parties require the same 
commodity, there is no possibility of any exchange. Were it 
practicable to monopolize the precious metals, there are few 
nations in the world that would not be cut off from all hope of 
mutual commercial relations. If one country afford to another 
what the latter wants in exchange, what more would she have? 
or in what respect would gold be preferable? for what else can 
it be wanted, than as the means of subsequently purchasing 
the objects of desire? 

The day will come, sooner or later, when people will won- 
der at the necessity of taking all this trouble to expose the folly 

possessed a circulating' medium of very near 400 millions sterling-. How 
happens it then, that the most exag-gerated ministerial calculations have ne- 
ver given a lai-ger total of specie than 47 millions, even at the period of its 
greatest abundance? Vide supra. Chap. 3. 

* All of them have acted under the conviction, 1. That the precious 
metals are the only desirable kind of wealth, whereas they perform but a 
secondary part in its production: 2. That they have it in their power to 
cause their regular influx by compulsory measures. The example of Eng- 
land CVide note preceding, J will show the little success of the experiment. 
The pre-eminent wealth of that nation, then, is derived from some other 
(Cause than the favourable balance of her commerce. But what other 
cause? Why, from the immensity of her production. But to what does 
she owe that immensity? To the frug^ality exerted in the accumulation of 
individual capital; to the national turn for industry and practical applica- 
tion; to the security of person and propert}', the facility of internal circula- 
tion, and freedom of individual agency, which, limited and fettered as it is, 
is yet, on the whole, superior to that of the other European states. 



CHAP. XVII. ON PRODUCTION. 105 

of a system, so childish and absurd, and yet so often enforced 
at the point of the bayonet. (1) 

EXD OF THE DIGRESSION tJPOTf THE BALANCE OF TRADE. 

To resume our subject. — We have seen, that the very ad- 
vantages, aimed at by the means of a favourable balance of 
trade, are altogether illusory; and that, supposing them real, 
it is impossible for a nation permanently to enjoy them. It re- 
mains to be shown, what is the actual operation of regulations 
framed with this object in view. 

By the absolute exclusion of specific manufactures of foreign 
fabric, a government establishes a monopoly in favour of the 
home producers of these articles, and in prejudice of the home 
consumers; that is to say, those classes of the nation which 
produce them, being entitled to their exclusive sale, can raise 
their prices above the natural rate; while the home consumers, 
being unable to purchase elsewhere, are compelled to pay for 
them unnaturally dear.* If the articles be not wholly pro- 

• Ricardo, in his Essay on the Principles of Political Economy and Taxa- 
tion, publishhd in 1817, has justly remarked on this passage, that a govern- 
ment can not, by prohibition, elevate a product beyond its natural rate of 
price: for in that case, the home producers would betake themselves in 
greater numbers to its production, and, by competition, reduce the profits 
upon it to the general level. To make myself better understood, I must 
therefore explain, that, by natural rate of price, I mean the lowest rate at 
which a commodity is procurable, whether by commerce or other branch of 
industry. If commercial can procure it cheaper than manufacturing in- 
dustry, and the government take upon itself to compel its production by the 
way of manufacture, it then imposes upon the nation a more chargeable 
mode of procurement. Thus, it wrongs the consumer, without giving to 
the domestic producer a profit, equivalent to the extra charge upon the 
consumer; for competition soon brings that profit down to the ordinary 
level of profit, and the monopoly is thereby rendered nugatory. So that, 
although Ricardo is thus far correct in his criticism, he only shows the 
measure I am reprobating to be more mischievous; inasmuch as it aug- 
ments the natui'al difficulties in the way of the satisfaction of human wants, 
without any counteracting benefit to any class or any individual whatever. 



(1) "To the English reader," said Mr. Prinsep in a note to this section, 
*' a great part of this elaborate digression will appear superfluous; so rapid 
has been the progress of Political Economy, and so wide the diffusion of 
its principles." But Mr. Prinsep, then, in 1821, supposed, " that however 
much the continuance of the restrictive system was reprobated by all think- 
ing men, the administration was not capable of emancipating itself from 
the trammels of practical habits and opinions in which it had been trained." 
In this he has been mistaken; for by no set of men have the "impolicy and 
injustice" of the restrictive system been more clearly pointed out, and 
measures taken to effect its entire repeal, than by Messrs. Huskisson, Can- 
ning, Robinson, and Wallace, the most prominent members of the British 
government. 

" They have already done a great deal," says a writer in a late number of 
the Edinburgh Review, "to relieve the commerce and industry of the 
country from the shackles imposed in a less enlightened age; and, notwith- 
standing the outcry and clamour, that a small faction, opposed to eyerjr 
21 



106 ON PRODUCTION. book i. 

hibitetl, but merely saddled with an import duty, the home 
producer can then increase their price by the whole amount of 
the duty, and the consumer will have to pay the diiference. 
For example, if an import duty of \fr. per dozen be laid upon 
earthenware plates worth S/r. per dozen, the importer, what- 
ever country he may belong to, must charge the consumer 4yr.; 
and the home manufacturer of that commodity is enabled to 
ask 4 fr. per dozen of his customers for plates of the same 
quality; which he could not do without the intervention of the 
duty; because the consumer could get the same article for 3 
fr.'. thus, a premium to the whole extent of the duty is given 
to the home manufacturer out of the consumer's pocket. 

Should any one maintain, that the advantage of producing 
at home counterbalances the hardship of paying dearer for 
almost every article; that our own capital and labour are en- 
gaged in the production, and the profits pocketed by our own 
lellow citizens; my answer is, that the foreign commodities we 
might import are not to be had gratis; that we must purchase 
them with values of home production, which would have given 
equal employment to our industry and capital: for we must 
never lose sight of this maxim, that products are always bought 
ultimately with products. It is most for our advantage to em- 
ploy our productive powers, not in those branches in which 
foreigners excel us, but in those, which we excel in ourselves; 
and with the product to purchase of others. The opposite 
course would be just as absurd, as if a man should wish to make 
his own coats and shoes. What would the world say, if, at 
the door of every house an import duty were laid upon coats 
and shoes, for the laudable purpose of compelling the inmates 
to make them for themselves? Would not people say with 
justice, let us follow each his own pursuits, and buy what we 
want with what we produce, or, which comes to the same 
thing, with what we get for our products. The system would 
be precisely the same, only carried to ridiculous extreme. 

Well may it be a matter of wonder, that every nation should 
manifest such anxiety to obtain prohibitory regulations, if it be 
true that it can profit nothing by them; and lead one to sup- 
pose the two cases not parallel, because we do not find indi- 



species of improvement, and attached to every thing- that is antiquated and 
vicious, has raised against them, they may be assured tliat their late mea- 
sures are cordially approved by the vast majority of the middle classes. Of 
Mr. Huskisson in particular, against whom every species of ribald abuse 
has been cast, we have no hesitation in saying, that he has done more to 
improve our commercial policy during the short period since he became 
President of the Board of Trade, than all the ministers who have preceded 
him for the last hundred years. And it ought to be remembered to his 
honour, that the measures he has suggested, and the odium thence arising, 
have not been proposed and incuiTed by him in the view of serving any 
party purpose, but solely because he beheved, and most justly, that these 
measures were sound in principle, and calculated to promote the real and 
lasting interests of the public." American Editor. 



CHAP. xvii. ON PRODUCTION. 107 

vidual householders solicitous to obtain the same privilege. — 
But the sole difference is this, that individuals are independent 
and consistent beings, actuated by no contrariety of will, and 
more interested in their character of consumers of coats and 
shoes to buy them cheap, than as manufacturers to sell unnatu- 
rally dear. 

Who, then, are the classes of the community so importunate 
for prohibitions or heavy import duties? The producers of the 
particular commodity, that applies for protection from compe- 
tition, not the consumers of that commodity. The public in- 
terest is their plea; but self-interest is evidently their object. 
Well, but, say these gentry, are they not the same thing? are 
not our gains national gains? By no means: whatever profit is 
acquired in this manner, is so much taken out of the pockets 
of a neighbour and fellow citizen: and, if the excess of charge 
thrown upon consumers by the monopoly could be correctly 
computed, it would be found, that the loss of the consumer ex- 
ceeds the gain of the monopolist. Here, then, individual and 
public interest are in direct opposition to each other; and, 
since public interest is understood by the enlightened few 
alone, is it at all surprising, that the prohibitive system should 
find so many partisans and so few opponents? 

There is in general far too little attention paid to the serious 
mischief of raising prices upon the consumers. The evil is not 
apparent to cursory observation, because it operates piece- 
meal, and is felt in a very slight degree on every purchase ot 
act of consumption: but it is really most serious, on account 
of its constant recurrence and universal pressure. The whole 
fortune of every consumer is affected by every fluctuation of 
price in the articles of his consumption; the cheaper they are, 
the richer he is, and vice versa. If a single article rise in price, 
he is so much the poorer in respect of that article; if all rise 
together, he is poorer in respect to the whole. And, since the 
whole nation is comprehended in the class of consumers, the 
■whole nation must in that case be the poorer. Besides which, 
it is crippled in the extension of the variety of its enjoyments, 
and prevented from obtaining products whereof it stands iii 
need, in exchange for those wherewith it might procure them. 
It is of no use to assert, that, when prices are raised, what one 
gains another loses. For the position is not true, except in 
the case of monopolies; nor even to the full extent with regard 
to them; for the monopolist never profits to the full amount of 
the loss to the consumers. If the rise be occasioned by taxa- 
tion or import-duty under any shape whatever, the producer 
gains nothing by the increase of price, but just the reverse, as 
we shall see by and by (Book iii. Chapter 7.): so that, in 
fact, he is no richer in his capacity of producer, though poorer 
in his quality of consumer. This is one of the most effective 
causes of national impoverishment, or at least one of the most 
powerful checks to the progress of national wealth. 

For this reason, it may be perceived, that it is an absurd 



108 ON PRODUCTION. book i, 

distinction to view with more jealousy the import of foreign 
objects of barren consumption, than that of raw materials for 
home manufacture. Whether the products consumed be of 
domestic or of foreign growth, a portion of wealth is destroyed 
in the act of consumption, and a proportionate inroad made 
into the wealth of the community. But that inroad is the re- 
sult of the act of consumption, not of the act of dealing with 
the foreigner; and the resulting stimulus to national pro- 
duction, is the same in either case. For, wherewith was the 
purchase of the foreign product made? either with a domestic 
product or with money, which must itself have been procured 
with a domestic product. In buying of a foreigner, the nation 
really does no more than send abroad a domestic product in 
lieu of consuming it at home, and consume in its place the 
foreign product received in exchange. The individual con- 
sumer himself, probably, does not conduct this operation; 
commerce conducts it for him. No one country can buy of 
another, except with its own domestic products. 

In defence of import duties it is often urged, " that, when 
the interest of money is lower abroad than at home, the fo- 
reign has an advantage over the home producer, which must 
be met by a countervailing duty." The low rate of interest 
is, to the foreign producer, an advantage, analogous to that of 
the superior quality of his land. It tends to cheapen the pro- 
ducts he raises; and it is reasonable enough that our domestic 
consumers should take the benefit of that cheapness. The 
same motive will operate here, that leads us rather to import 
sugar and indigo from tropical climates, than to raise them in 
our own. 

" But capital is necessary in every branch of production: so 
that the foreigner, who can procure it at a lower rate of in- 
terest, has the same advantage in respect to every product; 
and, if the free importation be permitted, he will have an ad- 
vantage over all classes of home-producers." Tell me, then, 
how his products are to be paid for. "Why, in specie, and 
there lies the mischief." And how is the specie to be got to 
pay for them? " All the nation has, will go in that way; and 
when it is exhausted, national misery will be complete." So 
then, it is admitted, that, before arriving at this extremity, 
the constant efflux of specie will gradually render it more 
scarce at home, and more abundant abroad; wherefore, it will 
gradually rise 1, 2, 3, per cent, higher in value at home than 
abroad; which is fully sufficient to turn the tide, and make 
specie flow inwards faster than it flowed outwards. But it 
will not do so without some returns; and of what can the re- 
turns be made, but of products of the land, or the commerce 
of the nation? For there is no possible means of purchasing 
from foreign nations, otherwise than with the products of the 
national land and commerce; and it is better to buy of them 
what they can produce cheaper than ourselves, because we 
may rest assured, that they must take in payment what we 



CHAP. XVII. ON PRODUCTION. 109 

can produce cheaper than they. This they must do, else there 
must be an end of all interchange. 

Again, it is affirmed, and what absurd positions have not 
been advanced to involve these questions in obscurity? that, 
since almost all the nation are at the same time consumers and 
producers, they gain by prohibition and monopoly as much in 
the one capacity as they lose in the other; that the producer, 
who gets a monopoly-profit upon the object of his own pro- 
duction, is, on the other hand, the sufferer by a similar profit 
upon the objects of his consumption; and thus that the nation 
is made up of rogues and fools, who are a match for each other. 
It is worth remarking, that every body thinks himself more 
rogue than fool: for, although all are consumers as well as pro- 
ducers, the enorm-ous profits made upon a single article are 
much more striking, than reiterated minute losses upon the 
numberless items of consumption. If an import duty be laid 
upon calicoes, the additional annual charge to each person of 
moderate fortune, may, perhaps, not exceed 12 or I5fr. at 
most; and probably he does not very well comprehend the 
nature of the loss, or feel it much, though repeated in some 
degree or other upon every thing he consumes; whereas, pos- 
sibly, this consumer is himself a manufacturer, say a hat-maker; 
and, should a duty be laid upon the import of foreign hats, he 
will immediately see that it will raise the price of his own 
hats, and probably increase his annual profits by many thou- 
sand yrawcj'. It is this delusion, that makes private interest 
so warm an advocate for prohibitory measures, even where 
the whole community loses more by them as consumers, than 
it gains as producers. 

But, even in this point of view, the exclusive system is 
pregnant with injustice. It is impossible that every class of 
production should profit by the exclusive system, supposing 
it to be universal, which, in point of fact, it never is in prac- 
tice, though possibly it may be in law or intention. Some ar- 
ticles can never, from the nature of things, be derived from 
abroad; fresh fish, for instance, or horned cattle; as to them, 
therefore, import duties would be inoperative in raising the 
price. The same may be said of masons and carpenters' work, 
and of the numberless callings necessarily carried on within 
the community; as those of shopmen, clerks, carriers, retail 
dealers, and many others. The producers of immaterial pro- 
ducts, public functionaries and fundholders, lie under the same 
disability. These classes can none of them be invested with 
a monopoly by means of import duties, though they are sub- 
jected to the hardship of many monopolies granted in that way 
to other classes of producers.* 

* There is a sort of malicious satisfaction in the discovery, that those who 
impose these restrictions are usualh^ among' the severest suiFerers. Some- 
times they attempt to indemnify themselves by a further act of injustice; 
the public functionaries augment their own salaries, if they have the keep- 
ing- pf the public piu-se. At other times they abolish a monopoly, when 



110 ON PRODUCTION. book i. 

Besides, the profits of monopoly are not equitably divided 
amongst the different classes even of those that concur in the 
production of the commodity, which is the subject of monopo- 
ly. If the master-adventurers whether in agriculture, manu- 
facture, or commerce, have the consumers at their mercy, their 
labourers and subordinate productive agents are still more ex- 
posed to their extortion, for reasons that will be explained in 
Book II. So that these latter classes participate in the loss 
with consumers at large, but get no share of the unnatural gains 
of their superiors. 

Prohibitory measures, besides affecting the pockets of the 
consumers, often subject them to severe privations. I am 
ashamed to say, that, within these few years, we have had the 
hat-makers of Marseilles petitioning for the prohibition of the 
import of foreign straw or chip hats, on the plea that they in- 
jured the sale of their own felt hats;* a measure that would 
have deprived the country people and labourers in husbandry, 
who are so much exposed to the sun, of a light, a cool, and 
cheap covering, admirably adapted to their wants, the use of 
which it was highly desirable to extend and encourage. 

In pursuit of what it mistakes for profound policy, or to 
gratify feelings it supposes to be laudable, a government will 
sometimes prohibit or divert the course of a particular trade, 
and thereby do irreparable mischief to the productive powers 
of the nation. When Philip II. became master of Portugal, 
and forbade all intercourse between his new subjects and the 
Dutch whom he detested, what was the consequence? The 
Dutch, who before resorted to Lisbon for the manufactures of 
India, of which they took off an immense quantity, finding this 
avenue closed against their industry, went straight to India 
for what they wanted, and, in the end, drove out the Portu- 
guese from that quarter; and, what was meant as the deadly 
blow of inveterate hatred, turned out the main source of their 
aggrandizement. " Commerce," says Fenelon, " is like the 
native springs of the rock, which often cease to flow altoge- 
ther, if it be attempted to alter their course, "t 

they find it press peculiarly on themselves. In 1599, the manufacturers of 
Tours petitioned Henry IV. to prohibit the import of gold and silver silk 
stuffs, which had previously been entirely of foreign fabric. They cajoled 
the government by the statement, that they could furnish the whole con- 
sumption of France with that article. The king granted their request, with 
his characteristic facility; but the consumers, who were chiefly the cour- 
tiers and people of condition, were loud in their remonstrances at the con- 
sequent advance of price; and the edict was revoked in six months. Me- 
moires de Sully, liv. ii. 

* Bulletin de la Societe d' Encouragement pour I'Industrie Nationale. 
No. A. 

fThe national convention of France prohibited the import of raw hides 
from Spain, on the plea, that they injured the trade in those of France; not 
observing, that the self-same hides went back to Spain in a tanned state. 
The tanneries of France, being obliged to procure the raw article at too 



CHAP. XVII. ON PRODUCTION. Ill 

Such arc the principal evils of impediments thrown in the 
way of import, which are carried to the extreme point by ab- 
solute prohibition. There have, indeed, been instances of na- 
tions that have thriven under such a system; but then it was, 
because the causes of national prosperity were more powerful, 
than the causes of national impoverishment. Nations resem- 
ble the human frame, which contains a vital principle, that in- 
cessantly labours to repair the inroads of excess and dissipa- 
tion upon its health and constitution. Nature is active in 
closing the wounds and healing the bruises inflicted by our 
own awkwardness and intemperance. In like manner, states 
maintain themselves, nay, often increase in prosperity, spite 
of the infinite injuries of every description, which friends as 
well as enemies heap upon them. And it is worth remarking, 
that the most industrious nations are those, which are the most 
subjected to such outrage, because none others could survive 
them. The cry is then ' our system must be the true one, for 
the national prosperity is advancing.' Whereas, were we to 
take an enlightened view of the circumstances, that, for the 
last three centuries, have combined to develop the power and 
faculties of man; to survey with the eye of intelligence the 
progress of navigation, of discovery, of invention in every 
branch of art and science; to take account of the variety of 
useful animals and vegetables that have been transplanted from 
one hemisphere to the other, and to give a due attention to 
the vast enlargement and increased solidity both of science and 
of its practical application, that we are daily witnesses of, we 
, can not resist the conviction, that our actual prosperity is no- 
thing to what it might have been; that it is engaged in a per- 
petual struggle against the obstacles and impediments thrown 
into its way; and that, even in those parts of the world where 
mankind is deemed the most enlightened, a great part of their 
time and exertions is occupied in destroying instead of multi- 
plying their resources, in despoiling instead of assisting each 
other; and all for want of correct knowledge and information 
respecting their real interests,* 

But, to return to the subject, we have just been examining 
the nature of the injury, that a community suffers by difficul- 
ties thrown in the way of the introduction of foreign commo- 

dear a rate, were quickly abandoned; and the manufacture was transferred 
to Spain, along with great part of the capital, and many of the hands em- 
ployed. It is next to impossible for a government, not only to do any good 
to national production by its interference, but even to help doing miscliief. 

* It is not my design to insinuate by this, that it is desirable that all minds 
should be imbued with all kinds of knowledge; but that every one should 
have just and correct ideas of that, in which he is more immediately con- 
cerned. Nor is the general and complete diffusion of information requisite 
for the beneficial ends of science. The good resulting from it is propor- 
tionate to the extent of its progress: and the welfare of nations differs in 
degree, according to the correctness of their notions upon those points, 
which most intimately concern them respectively. 



112 ON PRODUCTION. book i. 

dities. The mischief occasioned to the country, that produces 
the prohibited article, is of the same kind and description; it 
is prevented from turning its capital and industry to the best 
account. But it is not to be supposed, that the foreign nation 
can by this means be utterly ruined and stripped of all re- 
source, as Napoleon seemed to imagine, when he excluded the 
products of Britain from the markets of the continent. To say 
nothing of the impossibility of effecting a complete and actu- 
al blockade of a whole country, opposed as it must be by the 
universal motive of self-interest, the utmost effect of it can 
only be to drive its production into a different channel. A na- 
tion is always competent to the purchase and consumption of 
the whole of its own produce, for products are always bought 
with other products. Do you think to prevent England from 
producing value to amount of a million, by preventing her ex- 
port of woollens to that amount? You are much mistaken, if 
you do. England will employ the same capital and the same 
annual labour in the preparation of ardent spirits, by the dis- 
tillation of grain or other domestic products, that were before 
occupied in the manufacture of woollens for the French market, 
and she will then no longer bring her woollens to be bartered 
for French brandies. A country, in one way or other, direct 
or indirect, always consumes the values it produces, and can 
consume nothing more. Kit can not exchange its products 
with its neighbours, it is compelled to produce values of such 
kinds only as it can consume at home. This is the utmost ef- 
fect of prohibitions; both parties are worse provided, and nei- 
ther is at all the richer. 

Napoleon, doubtless, occasioned much injury, both to Eng- 
land and to the continent, by cramping their mutual relations 
of commerce as far as he possibly could. But, on the other 
hand, he did the continent of Europe the involuntary (a) ser- 
vice of facilitating the communication between its different 
parts, by the universality of dominion, which his ambition had 
well nigh achieved. The frontier duties between Holland, 
Belgium, part of Germany, Italy, and France, were demolish- 
ed; and those of the other powers, with the exception of Eng- 
land, were far from oppressive. We may form some estimate 
of the benefit thence resulting to commerce, from the discon- 
tent and stagnation that have ensued upon the establishment of 
the present system, of lining the frontier of each state with a 
triple guard of douaniers. AH the continental states so guard- 



(a) It is rather hard measure to deal out to a fallen despot, to attribute 
all the mischief he has done to design, and all the good to accident; but 
our author, in his literary character, had received some provocation. The 
grand and obvious benefit of extended dominion is the extension of facility 
of communication over a wider surface; and a conqueror may fairly be sup- 
posed to have that object in view, if he exhibit any traces of plan or design 
in his operations. Napoleon will scarcely be charged with any want of sys- 
tem or object. T. 



CHAP. XVII. ON PRODUCTION. 113 

ed have, indeed, preserved their former means of production ; 
but that production has been made less advantageous. 

It can not be denied, that France has gained prodigiously by 
the suppression of the provincial barriers and custom-houses, 
consequent upon her political revolution. Europe had, in 
like manner, gained by the partial removal of the international 
barriers between its different political states; and the world at 
large would derive similar benefit from the demolition ofthose, 
which insulate, as it were, the various communities, into 
which the human race is divided, 

I have omitted to mention other very serious evils of the 
exclusive system ; as, for instance, the creation of a new class 
of crime, that of smuggling; whereby an action, wholly in- 
nocent in itself, is made legally criminal: and persons, who are 
actually labouring for the general welfare, are subjected to 
punishment. 

Smith admits of two circumstances, that, in his opinion, will 
justify a government in resorting to import-duties: — 1. When 
a particular branch of industry is necessary to the public se- 
curity, and the external supply can not be safely reckoned up- 
on. On this account, a government may very wisely prohibit 
the import of gunpowder, if such prohibition be necessary to 
set the powder-mills at home in activity; for it is better to pay 
somewhat dear for so essential an article, than to run the risk 
of being unprovided in the hour of need.* 2. Where a simi- 
lar commodity of home produce is already saddled with a du- 
ty. The foreign article, if wholly exempt from duty, would 
in this case have an actual privilege; so that a duty imposed 
has not the effect of destroying, but of restoring the natural 
equilibrium and relative position of the different branches of 
production. 

Indeed, it is impossible to find any reasonable ground for 
exempting the production of values by the channel of external 
commerce from the same pressure of taxation, that weighs 
upon the production effected in those of agriculture and manu- 
facture. Taxation is, doubtless, an evil, and one which should 
be reduced to the lowest possible degree; but, when once a 
given amount of taxation is admitted to be necessary, it isbut 
common justice to lay it equally on all three branches of in- 
dustry. The error I wish to expose- to reprobation is, the no- 
tion, that taxes of this kind are favourable to production. A. 
tax can never be favourable to the public welfare, except by 
the good use that is made of its proceeds. 

These points should never be lost sight of in the framing of 
commercial treaties, which are really good for nothing, but to 
protect industry and capital, diverted into improper channels 

* There is no great weight in this plea of justification. For experience 
has sho\¥ai, that saltpetre is stored against the moment of need, in the 
largest quantity, when it is most an article of habitual import. Yet the 
legislature of France has saddled it with duties amounting to prohibition, 
33 



114 ON PRODUCTIOPs^. book i. 

by the blunders of legislation. These it would be far wiser to 
remedy than to perpetuate. The healthy state of industry and 
wealth is the state of absolute liberty, in which each interest is 
left to take care of itself. The only useful protection authori- 
ty can afford them is, that against fraud or violence. Taxes 
and restrictive measures never can be a benefit: they are at 
the best a necessary evil; to suppose them useful to the sub- 
jects at large, is to mistake the foundation of national pros- 
perity, and to set at naught the principles of political econo- 
my. 

Import duties and prohibitions have often been resorted to 
as a means of retaliation: "Your government throws impedi- 
ments in the way of the introduction of our national products: 
are not we, then, justified in equally impeding the introduction 
of yours?" This is the favourite plea, and the basis of most 
commercial treaties; but people mistake their object: grant- 
ing that nations have a right to do one another as much mis- 
chief as possible, which by the way I can hardly admit; 1 am 
not here disputing their rights, but discussing their interests. 

Undoubtedly a nation, that excludes you from all commer- 
cial intercourse with her, does you an injury; — robs you, as 
far as in her lies, of the benefits of external commerce; if, 
therefore, by the dread of retaliation, you can induce her to 
abandon her exclusive measures, there is no question about 
the expediency of such retaliation, as a matter of mere policy. 
But it must not be forgotten, that retaliation hurts yourself as 
well as your rival; that it operates, not defensively against her 
selfish measures, but offensively against yourself, in the first 
instance, for the purpose of indirectly attacking her. The 
only point in question is this, Avhat degree of vengeance you 
are animated by, and how much 3^ou will consent to throw 
away upon its gratification,* I will not undertake to enume- 
rate all the evils arising from treaties of commerce, or to apply 
the principles enforced throughout this work to all the clauses 
and provisions usually contained in them. I will confine my- 
self to the remark, that almost every modern treaty of com- 
merce has had for its basis the imaginary advantage and possi- 
bility of the liquidation of a favourable balance of trade by an 
import of specie. If these turn out to be chimerical, whatever 
advantage may have resulted from such treaties must be whol- 

* The transatlantic colonies, that have, within these few years, thrown off 
their colonial dependence, amongst otliers, the provinces of La Plata, and 
St. Domingo or Haiti, have opened their ports to foreigners, without any 
demand of reciprocity, and are more rich and prosperous than the)' ever 
were under the operation of the exclusive system. We are told, that the 
trade and prosperity of Cuba have doubled, since its ports have been open- 
ed to the flags of all nations by a concurrence of imperious circumstances, 
and in violation of the system of the mother-countr}'. The elder states of 
Europe go on like wrong-headed farmers, in a bigoted attachment to their 
old prejudices and methods, while they have examples of the good effects 
of an improved s} stem all around them. 



CHAP. XVII. ON PRODUCTION. 115 

ly referred to the additional freedom and facility of interna- 
tional communication obtained by them, and not at all to their 
restrictive clauses or provisoes, unless either of the contract- 
ing parties have availed itself of its superior power, to exact 
conditions savouring; of a tributary character; as England has 
done in relation to Portugal. («) In such case, it is mere ex- 
action and spoliation. 

Again, I would observe, that the offer of peculiar advant:ges 
by one nation to another, in the way of a treaty of commerce, 
if not an act of hostility, is at least one of extreme odium in 
the eyes of other nations. For the concession to one can only 
be rendered effectual by refusal to others. Hence the germ 
of discord and of war with all its mischiefs. It is infinitely 
more simple, and I hope to have shown, more profitable also, 
to treat all nations as friends, and impose no higher duties on 
the introduction of their products, than what are necessary to 
place them on the same footing as those of domestic growth. 

Yet notwithstanding all the mischiefs resulting from the ex- 
clusion of foreign products, which I have been depicting, it 
would be an act of unquestionable rashness abruptl}' to abolish 
it. Disease is not to be eradicated in a moment; it requires 
nursing and management to dispense even national benefits. 
Monopolies are an abuse, but an abuse in which enormous ca- 
pital is vested, and numberless industrious agents employed, 
w^hich deserve to be treated with consideration; for this mass 
of capital and industry can not all at once find a more advan- 
tageous channel of national production. Perhaps the cure of 
all the partial distresses, that must follow the downfall of that 
colossal monster in politics, the exclusive system, would be as 
much as the talent of any single statesman could accomplish; 
yet when one considers calmly the wrongs it entails when it 
is established, and the distresses consequent upon its over- 
throw, we are insensibly led to the reflection, that, if it be so 
difficult to set shackled industry at liberty again, with what 
caution ought we not to receive any proposition for enslaving 
her. 

But governments have not been content with checking the 
import of foreign products. In the firm conviction, that na- 
tional prosperity consists in selling without buying, and blind 



(a) This noted act of diplomacy, which Ims heen the source of infinite 
jealous}', savours nothing: of a tributary character, hut wns framed on tlie 
basis of reciprocity of partial exemption from duty. It has long been re- 
garded in England as a mere bug-bear. Indeed, since the days of Adam 
Smith, the exclusive measures of Great Britain have been directed, not so 
much to the exploded object of a favourable balance of foreign trade, and 
the consequent influx of specie, as to the no less absurd ends of the mono- 
poly of the home-market, and the maintenance of an inflated scale of money 
price. The duties and prohibitions affecting silk are chiefly directed to the 
former; the partial prohibition of foreign grain to the latter. These ob- 
jects are fast becoming impracticable and unwise in the opinion of their 
late abettors. T. 



116 ON PRODUCTION. book i. 

to the utter impossibility of the thing, they have gone beyond 
the mere imposition of a tax or fine upon purchasing of foreign- 
ers, and have in many instances ofiered rewards in the shape 
of bounties for selling to them. 

This expedient has been employed to an extraordinary de- 
gree by the British government, which has always evinced the 
greatest anxiety to enlarge the vents for British commercial 
and manufactured produce.* It is obvious, that a merchant, 
who receives a bounty upon export, can, without personal loss, 
afford to sell his goods in a foreign market at a lower rate than 
prime cost. In the pithy language of Smith, ' We can not force 
foreigners to buy the goods of our own workmen, as we may 
our own countrymen; the next best expedient, it has been 
thought, therefore, is to pay them for buying.' 

In fact, if a particular commodity, by the time it has reach- 
ed the French market, costs the English exporter 100 yr., his 
trouble, &c. included, and the same commodity could be bought 
in France at the same or a less rate, there is nothing to give 
him exclusive possession of the market. But if the British 
government pays a bounty of \0 fr. upon the export, and there- 
by enables him to lower his demand from 100 to 90 fr. he 
may safely reckon upon a preference. Yet what is this but a 
free gift of \0 fr. from the British government to the French 
consumer? It may be conceived, that the merchant has no ob- 
jection to this mode of dealing; for his profits are the same, as 
if the French consumer paid the full value, or cost price, of 
the commodity. The British nation is the loser in this trans- 
action, in the ratio of 10 per cent, upon the French consump- 

* The political circumstances of Eng-land, and her practice of supporting 
and subsidizing military operations on the continent, furnished her with a 
more plausible excuse for attempting to export, in the shape of manufactur- 
ed produce, those values, which she thus expended without return. But 
she hatli no need to be at any expense for that purpose. Had England 
charged a seignorage upon the coinage of gold and silver, as she ought to 
have done, she needed not to have given herself any trouble about the 
form of the values she exported to meet her foreign subsidies and ex- 
penditure: guineas would themselves have been an object of manufac- 
ture, (a) 



(c) So they were without the imposition of a seignorage, which, however, 
should have been charged. But England had no occasion to give bounties 
with a view to facilitate her foreign expenditure. The discount of her bills 
was a sufficient premium to the manufacturer; and, where that expenditure 
was large, greatly exceeded either drawbacks or bounties. Had specie 
been directly procurable, perhaps it might have saved something to the go- 
vernment, in the reduced profit payable to the merchants upon a mere 
complex operation. But the merchants must have made their profit upon 
bullion. The sole difference occasioned by the absurdity of gratuitous 
coinage was, the expense incurred in that coinage; but t!ie imposition of a 
seignorage would neither have promoted the import of bullion, nor facili- 
tated its transport to the scene of expenditure. T. 



CHAP. xvii. ON PRODUCTION. 117 

tion ; and France remits in return a value of but 90 fr. for what 
has cost 100.^ 

When a bounty is paid, not at the moment of export, but at 
the commencement of productive creation, the home consumer 
participates with the foreigner in the advantage of the bounty; 
for, in that case, the article can be sold below cost price in the 
home as well as in the foreign market. And if, as is some- 
times the case, the producer pockets the bounty, and yet keeps 
up the price of the commodity, the bounty is then a present of 
the government to the producer, over and above the ordinary 
profits of his industry. 

When, by the means of a bounty, a product is raised either 
for home or foreign consumption, which would not have been 
raised without one, the effect is, an injurious production, one 
that costs more than it is worth. Suppose an article, when 
completely finished off, to be saleable for 24 fr. and no more, 
but its prime cost, including of course the profits of productive 
industry, to amount to 21 fr., it is quite clear, that nobody will 
volunteer the production, for fear of a loss of ^ fr. But if the 
government, with a view to encourage this branch of industry, 
be willing to defray this loss, in other words, if it offer a boun- 
ty of S fr. to the producer, the production can then go on, and 
the public revenue, that is to say, the nation at large, will be a 
loser of S fr. And this is precisely the kind of advantage, 
that a nation gains by encouraging a branch of production, 
which can not support itself: it is in fact urging the prosecution 
of a losing concern, the produce of which is exchanged, not for 
other produce, but for the bounty given by the state. 

Wherever there is any thing to be made by a particular em- 
ployment of industry, it wants no encouragement; where there 
is nothing to be made, it deserves none. There is no truth in 
the argument, that perhaps the state may gain, though indivi- 
duals can not; for how can the state gain, except through the 
medium of individuals? Perhaps it may be said, that the state 
receives more in duties than it pays in bounties; but suppose 
it does, it merely receives with one hand and pays with the 
other: let the duties be lowered to the whole amount of the 
bounty, and production will stand precisely where it did be- 
fore, with this difference in its favour, viz. that the state will 
save the whole charge of management of the bounties, and part 
of that of the duties. 

Though bounties are chargeable, and a dead loss to the gross 
national wealth, there are cases in which it is politic to incur 
that loss;{l) as when a particular product is necessary to pub- 

* The British government seems not to have perceived, that the most 
profitable sales to a nation are those made by one individual to another 
within the nation; forthese latter imply a national production or two values, 
the value sold and that given in exchange. 



(1) [Vide Note, page 47.] 



118 ON PRODUCTION. book i, 

lie security, and must be had at any rate, however extravagant. 
Louis XIV., with a view to restore the marine of France^ 
granted a bounty of S/r. per ton upon every ship fitted out in 
France. His object was to train up sailors. So likewise when 
the bounty is the mere refunding of a duty previously exact- 
ed. The bounty paid by Great Britain upon the export of re- 
fined sugar is nothing more than the reimbursement of the 
import duties upon muscovado and molasses. 

Perhaps, too, it may be wise in a government to grant a pre- 
mium on a particular product, which, though it make a loss 
in the outset, holds out a fair prospect of profit in a few years' 
time. Smith thinks otherwise: hear what he says on the sub- 
ject. ' No regulation of commerce can increase the quantity 
of industry in any society, beyond what its capital can main- 
tain. It can only divert a part of it into a direction, into which 
it might not otherwise have gone; and it is by no means cer- 
tain, that this artificial direction is likely to be more advan- 
tageous to the society, than that into which it would have gone 
of'its own accord. — The statesman, who should attempt to di- 
rect private people in what manner they ought to employ their 
capitals, would not only load himself with a most unnecessar}'- 
attention, but assume an authority, which could safely be trust- 
ed, not only to no single person, but to no council or senate 
whatever; and which would no where be so dangerous, as in 
the hands of a man, who had folly and presumption enough to 
fancy himself fit to exercise it. — Though, for want of such re- 
gulations, the society should never acquire the proposed manu- 
facture, it would not upon that account necessarily be the poor- 
er in any one period of its duration. In every period of its 
duration, its whole capital and industry might still have been 
employed, though upon different objects, in the manner that 
was most advantageous at the time.'* 

And Smith is certainly right in the main; though there are 
circumstances that form exceptions to the general rule, ' that 
every one is the best judge how to employ his industry and 
capital.' Smith wrote at a period and in a country, where 
personal interest is well understood, and where any profitable 
mode of investing capital and industry is not likely to be long 
overlooked. But every nation is not so far advanced in intelli- 
gence. How many countries are there, where many of the 
best employments of capital are altogether excluded by pre- 
judices, that the government alone can remove? How many 
cities and provinces, where certain established investments of 
capital have prevailed from time immemorial? In one place, 
every body invests in landed property, in another in houses, 
and in others still in public offices, or national funds. Every 
unusual application of the power of capital is, in such places, 
contemplated with distrust or disdain; so that partiality shown 

* Wealth of Nations, book iv. c. 2. 



CHAP, XVII. ON PRODUCTION. 119 

to a profitable mode of employing industry or capital may pos- 
sibly be productive of national advantage. 

Moreover, a new channel of industry may ruin an unsup- 
ported speculator, though capable of yielding enormous profit, 
when the labourers shall have acquired practice, and the no- 
velty has once been overcome. France at present contains 
the most beautiful manufactures of silk and of woollen in the 
world, and is probably indebted for them to the wise encou- 
ragement of Colbert's administration. He advanced to the 
manufacturers 2000 fr. for every loom at work; and, by the 
way, this species of encouragement has a very peculiar advan- 
tage. In ordinary cases, whatever the government levies upon 
the produce of individual exertion is wholly lost to future pro- 
duction; but, in this instance, a part was employed in repro- 
duction; a portion of individual revenues was thrown into the 
aggregate productive capital of the nation. This was a degree 
of wisdom one could hardly have expected, even from person- 
al self-interest.* 

It would be out of place here to inquire, how wide a field 
bounties open to peculation, partiality, and the whole tribe of 
abuses incident to the management of public affairs. The most 
enlightened statesman is often obliged to abandon a scheme of 
evident public utility, by the unavoidable defects and abuses 
in the execution. Among these, one of the most frequent and 
prominent is, the risk of paying a premium, or granting a fa- 
vour to the pretensions, not of merit, but of importunity. In 
other respects, I have no fault to find with the honours, or 
even pecuniary rewards publicly given to artists or mechanics, 
in recompense of some extraordinary feat of genius or address. 
Rewards of this kind excite emulation, and enlarge the stock 
of general knowledge, without diverting industry or capital 
from their most beneficial channels. Besides, they cost no- 
thing in comparison of bounties of another description. The 
bounty on the export of wheat has, by Smith's account, cost 
England in some years as much as seven millions of our fr. 
I do not believe that the British or any other government, 
ever spent the fiftieth part of that sum upon agriculture in any 
one year. 

* 1 am far from equally approving all the encouragements of this kind 
lield out by this minister; particularly the sums lavished on several esta- 
blishments of pure ostentation, which, like that of the Gobelin tapestry, have 
constantly cost more than they have produced. 



120 ON PRODUCTION. book i. 



SECTION II. 

Of the Effect of Regulations fixing the Manner of Pro- 
duction. 

The interference of the public authority, with regard to the 
details of agricultural production, has generally been of a bene- 
ficial kind. The impossibility of intermeddling in the minute 
and various details of agriculture, the vast number of agents it 
occupies, often widely separated in locality and pursuits, from 
the largest farming concerns to the little garden of the cottager, 
the small value of the produce in comparison with its volume, 
are so many obstacles, that nature has placed in the way of 
authoritative restraint and interference. All governments, 
that have pretended to the least regard for the public welfare, 
have consequently confined thmselves to the granting of pre- 
miums and encouragements, and to the diffusion of knowledge 
which has often contributed largely to the progress of this art. 
The veterinary college of Alfort, the experimental farm of 
Rambouillet, the introduction of the merino breed, are real 
benefits to the agriculture of France, ^he enlargement and per- 
fection of which she owes to the providence of the different 
rulers, that her political troubles have successively brought 
into power. 

A national administration, that guards with vigilance the faci- 
lity of communication, and the quiet prosecution of the labours 
of husbandry, or punishes acts of culpable negligence, as the 
destroying of caterpillars* and other noxious insects, does a 
service analogous to the preservation of civil order and of pro- 
perty, without which production must cease altogether. 

The regulations relative to the felling of trees in France, 
however indispensable for the preservation of their growth, 
at least in many of their provisions, appear in others rather to 
operate as a discouragement of that branch of cultivation, 
which, though particularly adapted to certain soils and sites, 
and conducive to the attraction of atmospheric moisture, yet 
seems to be daily qn the decline. 

* Under the old regime of the canton of Berne, every proprietor of land 
was required to furnish, in the proper season of the year, so many bushels 
of cockchafers, in proportion to the extent of his property. The rich land- 
holders were in the habit of buying their contingents from the poorer sort 
of people, who made it their business to collect them, and did it so effec- 
tually, that the district was ultimately cleared of them. But the extreme 
difficulty, that even the most provident government meets with in doing 
good by its interference in the business of production, may be judged of by 
a fact of which I am credibly assured; viz. that this act of paternal care gave 
rise to the singular fraud of transporting these insects in sacks from the Sa- 
voy side of the Lehman lake into the Pays de Vaud. " 



CHAP. XVII. ON PRODUCTION. 121 

But there is no branch of industry, that has suffered so much 
from the officious interference of authority in its details, as that 
of manufacture. 

Much of that interference has been directed towards limit- 
ing the number of producers, either by confining them to one 
trade exclusively, or by exacting specific terms, on which 
they shall carry on their business. This system gave rise to 
the establishment of chartered companies and incorporated 
trades. The effect is always the same, whatever be the means 
employed. An exclusive privilege, a species of monopoly, is 
created, which the consumer pays for, and of which the privi- 
leged persons derive all the benefit. The monopolists can 
prosecute their plans of self-interest with so much the more 
ease and concert, because they have legal meetings, and a regu- 
lar organization. At such meetings, the prosperity of the cor- 
fioration is mistaken for that of commerce and of the nation at 
arge; and the last thing considered is, whether the proposed 
advantages be the result of actual new production, or merely 
a transfer from one pocket to another, from the consumers to 
the privileged producers. This is the true reason, why those 
engaged in any particular branch of trade are so anxious to 
have themselves made the subject of regulation; and the pub- 
lic authorities are commonly, on their part, very ready to in- 
dulge them in what offers so fair an opportunity of raising a 
revenue. 

Moreover, arbitrary regulations are extremely flattering to 
the vanity of men in power, as giving them an air of wisdom 
and foresight, and confirming their authority, which seems to 
derive additional importance from the frequency of its exer- 
cise. There is, perhaps, at this time no country in Europe 
where a man is free to dispose of his industry and capital in 
what manner he pleases; in most places he can not even change 
his occupation or place of residence at pleasure. It is not 
enough for a man to have the necessary qualifications of abili- 
ty and incimation to become a manufacturer or dealer in the 
woollen or silk line, in spirits or calicoes; he mast besides 
have served his time, or been admitted to the freedom of the 
craft.* Freedoms and apprenticeships are likewise expedients 
of police, not of that wholesome branch of police, whose ob- 
ject is the maintenance of public and private security, and 
which is neither costly and vexatious; but of that sort of po- 
lice, which bad governments employ to preserve or extend 
their personal authority at any expense. By the dispensation 
of honorary or pecuniary advantages, authority can generally 

* When industry made its first start in the middle ages, and the mercan- 
tile classes were exposed to the rapacity of a gi-asping- and ignorant nobility, 
incorporated trades and crafts were useful in extending to individual indus- 
try the protection of the association at large. Their utility has ceased al- 
together of late years; for governments have, in our days, been either too 
enlightened to encroach upon the sources of financial prosperity, or too 
poweiful to stand in awe of such associations. 
23 



122 ON PRODUCTION. book i. 

influence the chiefs and superiors it has appointed to the cor- 
porations, who think to earn these honours and emoluments 
by their subservience to the power that confers them. These 
are the ready tools for the management of the body at large, 
and volunteer to denounce the individuals, whose firmness 
may be formidable, and report those, whose servility may be 
reckoned upon, and all under the pretext of public good. Offi- 
cial harangues and public addresses are never wanting in plau- 
sible reasons for the contuiuance of old restrictions on liberty 
of action, or for the establishment of new ones; for there is no 
cause so bad, as to be without some argument or other in its 
favour. 

The chief advantage, and the one most relied upon, is, the 
insurance of a more perfect execution of the products raised 
for consumption, and of a superiority in them highly favoura- 
ble to the national commerce, and calculated to secure the con- 
tinued demand of foreigners. But does this advantage result 
from the system in question? what security is there that the 
corporate body itself will always be composed of men not 
merely of integrity, but of scrupulous delicacy, such as would 
never be disposed to take in either their own countrymen or 
foreigners? We are told, that this system facilitates the en- 
forcement of regulations for the warranty and verification of 
the quality of products; but are not such regulations illusory 
in practice, even under the corporate system? and, supposing 
them absolutely necessary, is there no more simple way of 
enforcing them. 

Neither will the length of apprenticeship be a better gua- 
rantee of the perfection of the work; the only thing to be de- 
pended upon for that perfection is the skill of the workman, 
and that is best attained by paying him in proportion to his 
superiority. ' To teach any young man,' says Smith, ' in the 
completest manner how to apply the instruments, and how to 
construct the machines, of the common mechanic trades, can 
not well require the lessons of more than a few weeks, per- 
haps those of a few days might be sufficient. The dexterity 
of hand, indeed, even in common trades, can not be acquired 
without much practice and experience; but a young man would 
practice with much more diligence and attention, if from the 
beginning he wrought as a journeyman, being paid in propor- 
tion to the little work which he could execute, and paying in 
his turn for the materials which he might sometimes spoil 
through awkwardness and inexperience.'* 

Were apprentices bound out a year later, and the interval 
spent in schools conducted on the plan of mutual instruction, 
I can hardly think the products would be worse executed; and, 
beyond all doubt, the labouring class would be advanced a 
stage in civilization. 

Were apprenticeships a sure means of attaining a greater 

* TVealth of Nations, book i. c. 10. 



CHAP. XVII. ON PRODUCTION. 123 

perfection of products, those of Spain would be as good as 
those of Britain. It was not before incorporated trades and 
compulsory apprenticeships had been abolished in France, 
that she attained that superiority of execution she has now to 
boast of. 

Perhaps there is no one mechanic art nearly so difficult as 
that of the gardener or field labourer; yet this is almost the 
only one that has no where been subjected to apprenticeship. 
Are vegetables and fruits produced in less abundance or per- 
fection? Were cultivators a corporate body, I suppose it would 
soon be asserted, that high-flavoured peaches and white heart 
lettuces, could not be raised without a code of some hundred 
well penned articles. 

After all, regulations of this nature, even admitting their 
utility, must be nugatory as soon as evasion is allowed: now 
it is notorious, that there is no manufacturing town, where 
money will not purchase exemption. So that they are more 
than merely useless as a warranty of quality; inasmuch as they 
are an engine of the most odious injustice and extortion. 

In support of these opinions, the advocates for the corporate 
system appeal to the example of GreatBritain, where industry 
is well known to be greatly shackled, and yet manufactures 
prosper. But in this they expose their ignorance of the real 
causes of that prosperity. " These causes," Smith tells us, 
" seem to be, the general liberty of trade, which, notwithstand- 
ing some restraints, is at least equal, perhaps superior, to what 
it is in any other country; the liberty of exporting, duty free, 
almost all sorts of goods, which are the produce of domestic 
industry, to almost any foreign country; and, what perhaps is 
of still greater importance, the unbounded liberty of transport- 
ing them from any one part of our own country to any other, 
without being obliged to give any account to any public office, 
without being liable to question or examination of any kind, 
&c."* Add to these, the complete inviolability of all proper- 
ty whatever, either by public or private attack, the enormous 
capital accumulated by her industry and frugality, and lastly, 
the habitual exercise of attention and judgment, to which her 
population is trained from the earliest 3^ears; and there is no 
need of looking farther for the causes of the manufacturing 
prosperity of Britain, 

Those, who cite her example in justification of their desire 
to enthral the exertions of industry, are not perhaps aware, 
that the most thriving towns in that kingdom, those on which 
her character for manufacturing pre-eminence is mainly built, 
are the very places, where there are no incorporations of crafts 
and trades. Manchester, Birmingham, and Liverpool,! were 
mere villages a century or two ago, but now rank in point of 
wealth and population next to London, and much before York, 

* IVealth of Nations, book iv. c. 7, 
^ Baeri. vol. i. p. 107, 



124 ON PRODUCTION. book i. 

Canterbury, and even Bristol, cities of the greatest antiquity 
and privileges, and the capitals of her most thriving provinces, 
but still subjected to the shackles of these Gothic institutions. 
"The town and parish of Halifax," says Sir John Nickols,* 
a writer of acknowledged local information, "has, within 
these forty years, seen the number of its inhabitants quadru- 
pled; whilst many other towns, subjected to corporations, have 
experienced a sensible diminution of theirs. Houses situated 
within the precincts of the city of London hardly find tenants, 
and numbers of them remain empty; whilst Westminster, 
South wark, and the other suburbs, are continually increasing. 
These suburbs are free, whilst London supports within itself 
four score and twelve exclusive companies of all kinds, of 
which we may see the members annually adorn, with a silly 
pageantry, the tumultuous triumphal procession of the Lord 
Mayor." 

The prodigious manufacturing activity of some of the suburbs 
of Paris is notorious; of the Faubourg St. Antoine, in particu- 
lar, where industry enjoyed many exemptions. Some products 
were made no where else. How happened it, that without 
apprenticeships, or the necessity of being free of the craft, the 
manufacturer required a greater degree of skill, than in the 
rest of the city, which was subject to those institutions, that 
are held up as so indispensable. For a very simple reason; 
because self-interest is the best of all instructors. 

An example or two will serve better than all reasoning in 
the world, to show the impediments thrown in the way of the 
development of industry by incorporations of trades and 
crafts. Argand, the inventor of the lamps that go by his name, 
and yield at the same expense, triple the amount of light, was 
dragged before the Parlement de Paris, by the company of 
tinmen, locksmiths, ironmongers, and journeymen farriers, 
who claimed the exclusive right of making lamps, t Lenoir, 
the celebrated Parisian philosophical and mathematical instru- 
ment maker, had set up a small furnace for the convenience 
of working the metals used in his business. The syndics of 
the founders' company came in person to demolish it; and he 

* JRemarJes on the Advantages and Disadvantages of France and of Great 
Britain, 12mo. 1754. § 4. p. 142. (a) 

■\ "Why not get himself made free of the compaii)'^?" say those who are 
ever ready to palliate or justify oflficial abuse, '['he corporation, which 
had the control over admissions, was itself interested in thwarting a dan- 
gerous competitor. Besides, why compel the ingenious inventor to waste 
in a personal canvas, tliat time, which would be so much more profitably 
occupied in his calling ? 



(a) This work was originally published in Frencli in 1752, with great suc- 
cess, under the fictitious name of Sir John Nickols, and is supposed to have 
been the production of a foreigner employed about the court of Versailles. 
It contains many judicious remarks upon the internal policy of Britain. 1\ 



CHAP. XVII. ON PRODUCTION. 125 

was obliged to apply to the king for protection. Thus was 
talent rendered dependent upon court favour. The manufac- 
ture of japanned hardware was altogether excluded from 
France until the era of the revolution, by the circumstance of 
its requiring the skill and implements of many different trades, 
and the necessity of being admitted to the freedom of them 
all, before an individual could carry it on. It would be easy to 
fill a volume with the recapitulation of the disheartening vexa- 
tions, that personal industry had to encounter in the city of 
Paris alone, under the corporate system; and another with 
that of the successful efforts made, since that system was 
abolished by the revolution. 

For the same reason, that the free suburb of a chartered 
town, or a free town in the midst of a country embarrassed by 
the officiousness of a meddling government, will exhibit an 
unusual degree of prosperity, a nation that enjoys the freedom 
of industry, in the midst of others following the corporate 
system, would probably reap similar advantages. Those have 
thriven the most, that have been the least shackled by the 
observance of formalities, provided of course, that individuals 
be secure from the exactions of power, the chicanery of law, 
and the attempts of dishonesty or violence. Sully, whose 
whole life was spent in the study and practice of measures 
for improving the prosperity of France, entertained this opin- 
ion.* In his memoirs, he notices the multiplicity of useless 
laws and ordinances, as a direct barrier to the national pro- 
gress, t 

It may, perhaps, be alleged, that, were all occupations quite 
free, a large proportion of those who engaged in them would 
fall a sacrifice to the eagerness of competition. Possibly they 
might, in some few instances; although it is not very likely 
there should be a great excess of candidates in a line, that 
held out but little prospect of gain; yet, admitting the casual 
occurrence of this evil, it would be of infinitely less magni- 
tude, than permanently keeping up the prices of produce at a 

* Iav. xix. 

f Colberfs early education in the counting-house of the Messrs. Mascrani, 
of Lyons, a very considerable mercantile estabhshment, very early imbued 
him with the principles of the manufacturers. Commerce and manufacture 
thi-ived prodigiously imder his powerful and judicious patronage; but, 
though he liberated them from abundance of oppression, he was himself 
liardly sparing enough of ordinances and regulations; he encouraged manu- 
factures at the expense of agriculture, and saddled the people at large with 
the extraordinary profits of monopolists. We can not shut our eyes to the 
fact, that to this system, acted upon ever since the days of Colbert, France 
owed the striking inequalities of private fortune, the overgrown wealth of 
some, and the superlative misery of others; the contrast of a few splendid 
establishments of industr}', with a wide waste of poverty and degradation. 
This is no ideal picture, but one of sad reality, which the study of princi- 
ples will help us to explain. 



126 ON PRODUCTION. book. i. 

rate, that must limit its consumption, and abridge the power 
of purchasing in the great body of consumers. 

If the measures of authority, levelled against the free dispo- 
sition of each man's respective talents and capital, are criminal 
in the eye of sound policy, it is still more difficult to justify 
them upon the principles of natural right. " The patrimony 
of a poor man," says the author of the Wealth of Nations, 
"lies in the strength and dexterity of his hands; and to hinder 
him from employing this strength and dexterity in what man- 
ner he thinks proper, without injury to his neighbour, is a 
plain violation of his most sacred property." 

However, as society is possessed of a natural right to regu- 
late the exercise of any class of industry, that without regula- 
tion might prejudice the rest of the community, physicians, 
surgeons, and apothecaries, are with perfect justice subjected 
to an examination into their professional ability. The lives 
of their fellow-citizens are dependent upon their skill, and a 
test of that skill may fairly be established; but it does not 
seem advisable to limit the number of practitioners nor the 
plan of their education. Society has no interest further than 
to ascertain their qualification. 

On the same grounds, regulation is useful and proper, when 
aimed at the prevention of fraud or contrivance, manifestly 
injurious to other kinds of production, or to the public safety, 
and not at prescribing the nature of the products and the 
methods of fabrication. Thus, a manufacturer must not be al- 
lowed to advertise his goods to the public as of better than 
their actual quality: the home consumer is entitled to the pub- 
lic protection against such a breach of faith; and so, indeed, 
is the mercantile character of the nation, which must suffer in 
the estimation and demand of foreign customers from such 
practices. And this is an exception to the general rule, that 
the best of all guarantees is the personal interest of the manu- 
facturer. For, possibly, when about to give up business, he 
may find it answer to increase his profit by a breach of faith, 
and sacrifice a future object he is about to relinquish for a 
present benefit. A fraud of this kind ruined the French 
cloths in the Levant market, about the year 1783; since when 
the German and British have entirely supplanted them.* — 
We may go still further. An article often derives a value 
from the name, or from the place, of its manufacture. When 
we judge from long experience, that cloths of such a denomina- 
tion, and made at such a place, will be of a certain breadth 
and substance, it is a fraud to fabricate, under the same name 
and at the same place, a commodity of inferior substance and 

* The loss of this trade has been erroneously imputed to the liberty of 
commerce, consequent upon the revolution. But Felix Beaujour, in his 
Tableau du Commerce de la Grece, has shown, that it must be referred to 
an earlier period, when restrictions M-^ere still in force. 



CHAP. XVII. ON PRODUCTION. 127 

quality to the ordinary standard, and thus to send it into the 
world under a false certificate. 

Hence we may form an opinion of the extent, to which 
government may carry its interference with benefit. The cor- 
respondence with the sample of conditions, express or implied, 
must be rigidly enforced, and government should meddle with 
production no further. I would wish to impress upon my 
readers, that the mere interference is itself an evil, even where 
it is of use:* first, because it harasses and distresses individuals; 
and, secondly, because it costs money, either to the nation, if 
it be defrayed by government, that is to say, charged upon 
the public purse, or to the consumer, if it be charged upon the 
specific article; in the latter case, the charge must of course, 
enhance the price, thereby laying an additional tax upon the 
home consumer, and pro tanto discouraging the foreign de- 
mand. 

If interference be an evil, a paternal goverement will be 
most sparing of its exercise. It will not trouble itself about 
the certification of such commodities, as the purchaser must 
understand better than itself; or of such as can not well be cer- 
tified by its agents; for, unfortunately, a government must 
always reckon upon the negligence, incapacity, and miscon- 
duct of its retainers. But some articles may well admit of 
certification; as gold and silver, the standard, of which can 
only be ascertained by a complex operation of chemistry, 
which few purchasers know how to execute, and which, if 
they did, would cost them infinitely more, than it can be exe- 
cuted for by the government in their stead. 

In Great Britain, the individual inventor of a new product 
or of a new process may obtain the exclusive right to it, by ob- 
taining what is called a patent. While the patent remains in 
force, the absence of competitors enables him to raise his price 
far above the mere ordinary return of his outlay with interest, 
and the wages of his own industry. Thus he receives a pre- 
mium from the government, charged upon the consumers of 
the new article; and this premium is often very large, as may 
be supposed, in a country so immensely productive as Great 
Britain, where th'ere are consequently abundance of affluent 
individuals, ever on the lookout for some new object of en- 
joyment. Some years ago, a man invented a spiral or worm 
spring for insertion between the leather braces of carriages to 
ease the motion, and made his fortune by the patent for so 
trifling an invention. 

Privileges of this kind no one can reasonably object to; for 
they neither interfere with, nor cramp any branch of industry, 
previously in operation. Moreover, the expense incurred is 

* " Every restraint, imposed by legislation upon the freedom of human 
action, must inevitably extinguish a portion of the energies of the com- 
munity, and abridge its annual product." Vorri, Refl. sur VEcon. FoL 
c. 12. 



128 ON PRODUCTION. book i. 

purely voluntary; and those, who choose to incur it, are not 
obliged to renounce the satisfaction of any previous wants, 
either of necessity or of amusement. 

However, as it is the duty of every government to aim at the 
constant amelioration of its subjects' condition, it can not de- 
prive other producers to eternity of the right to employ part 
of their industry and capital in this particular channel, which 
perhaps they might sooner or later have themselves discover- 
ed, or preclude the consumer for a very long period from the 
advantages of a competition-price. Foreign nations, being out 
of its jurisdiction, would of course grant no privilege to the 
inventor, and would, therefore, in this particular, during the 
operation of the patent, be better off than the nation where the 
invention originated. 

France* has imitated the wise example of England, in as- 
signing a limit to the duration of these patent rights, after 
which the invention is free for all the world to avail themselves 
of. It is also provided, that, if the process be capable of con- 
cealment, it shall be divulged at the expiration of the term. 
And the patentee, who in this case, it may be supposed, could 
do without the patent, has this advantage: that if his secret be 
discovered by any body in the interim, it can not be made 
available till the expiration of the term. 

Nor is it at all necessary, that the government should inquire 
into the novelty or utility of the invention; for, if it be useless, 
so much the worse for the inventor; and, if it be already known, 
every body is competent to plead and prove that fact, and the 
previous right of the public; so that the only sufferer is the 
mventor, who has been at the expense of a patent for nothing. 
Thus the public is no loser by this species of encouragement, 
but, on the contrary, may derive prodigious advantage. 

The regulations tending to direct either the object or the 
method of production, which have been above observed upon, 
by no means comprise all the measures adopted by different 
nations with those views. Indeed, were 1 to specify them all, 
my catalogue would soon be incomplete; for new ones are 
every day brought into practice. The great point is, to lay 
down certain principles, that may enable us before hand to 
judge of their consequences. But there are two other branches 
of commerce, that have been the subject of more than usual 
regulation, and are, therefore, worthy of more especial inves- 
tigation. I shall devote the two succeeding sections to their 
exclusive examination. 

* Vide the laws dated nil Jan. and 25th May, 1791, and 20th Sept, 1792. 
Also the arret of the government, dated 5 Vendemaire, an. Ix. 



CHAP. XVII. ON PRODUCTION. 129 

SECTION III. 

Of Privileged Trading Companies. 

A GOVERNMENT Sometimes grants to individual merchants, 
and much oftener to trading companies, the exclusive privilege 
of buying and selling specific articles, tobacco for example; or 
of trafficking with a particular country, as with India. 

The privileged traders, being thus exempted from all com- 
petition by the exertion of the public authority, can raise their 
prices above the level, that could be maintained under the ap- 
pellation of a free trade. This unnatural ratio of price is 
sometimes fixed by the government itself, which thus assigns 
a limit to the partiality it exercises towards the producers, and 
the injustice it practises upon the consumers: otherwise, the 
avarice of the privileged company would be bounded only by 
the dread of losing more by the reduction of the gross amount 
of its sales, in consequence of increased prices, than it would 
gain by their unnatural elevation. At all events, the consumer 
pays for the commodity more than its worth; and govern- 
ment generally contrives to share in the profits of monopoly. 

It has been said, for the most ruinous expedient is sure to 
find some plausible argument or other to support it, that the 
commerce with certain nations requires precautionary mea- 
sures, which privileged companies only can enforce. At one 
time the plea is, that forts must be built, and marine establish- 
ments kept up; as if in truth it were worth while to traffic sword 
in hand, or an army were necessary to protect plain dealing; 
or as if the state did not already maintain at great charge a 
military force for the protection of its subjects! At another, 
that diplomatic address is indispensable. The Chinese, for 
instance, are a people so bigoted to form and prone to suspi- 
•cion, so entirely independent of other nations, by reason of 
their remote position, the extent of their territory, and the pe- 
culiar character of their wants, that it is a matter of special 
and precarious favour to be allowed to deal with them. We 
must, therefore, elect either to go without their teas, silks, and 
nankeens, or be content to submit to precautions, which can 
alone ensure the continuance of the trade; for the dealings of 
individuals might endanger the continuance of that good hu- 
mour, without which the mutual intercourse of the two nations 
would be at an end. 

But let me ask, is it so certain, that the agents of a compa- 
ny, who are too apt to presume upon the support of the mili- 
tary power, either of the nation, or at least of the company, — • 
is it quite certain, that such agents are more likely to keep 
alive an amicable feeling, than private traders, in whom more 
24 



130 ON PRODUCTION. book i. 

deference to local institutions might he expected, and who 
would have an immediate interest in keeping clear of any 
misunderstanding, that should endanger both their persons 
and their propert}^?* But supposing the worst that could hap- 
pen, and granting for argument's sake that the trade with Chi- 
na can not be conducted otherwise than by a privileged com- 
pany, does it follow, that without one we must needs give up 
the taste for Chinese productions? Certainly not. The trade 
in Chinese goods will always exist, for this plain reason, that 
it suits both parties, the Chinese and their customers. But 
shall we not pay dearer for those goods? There is no ground 
for thinking so. Three fourths of the European states have 
never sent a single ship to China, and yet are abundantly sup- 
plied with teas, with silks, and with nankeens, and that too at 
a very cheap rate. 

There is another argument of more general application, and 
still more frequently urged; viz. that a company, having the 
exclusive trade of any given country, is exempt from the ef- 
fects of competition, and, therefore, buys at a less price. But, 
in the first place, it is not true that the exclusive privilege 
exempts from the effect of competition; the only competition 
it removes, is that of the national traders, which would be of 
the utmost benefit to the nation; but it excludes neither the 
competition of foreign companies, nor of foreign private 
traders. In the next place, there are many articles that would 
not rise in price in consequence of the competition, which 
some people affect to be alarmed at, though in truth it is a mere 
bug-bear. 

Suppose Marseilles, Bourdeaux, L'Orient, were all to fit out 
vessels to bring tea from China, we have no reason to believe, 
that all their ventures together would import more tea into 
France, than France could consume or dispose of. All we 
have to fear is, that they should not import enough. Now, if 
they were to import no more than other merchants would have 
imported for them, the demand for tea in China will have been 
just the same in both cases; consequently, the commodity will 
not have become more scarce there. Our merchants would 
hardly have to pay dearer for it, unless the price should rise 
in China itself; and what sensible effect could the purchases of 
a few merchants of France have upon the price of an article, 
consumed in China itself, to one hundred times the amount of 
the whole consumption of Europe? 

But, granting that European competition would operate to 
raise the price of some coniniodities in the eastern market, is 

* This has been exemplified in the commercisil relations of the United 
States with China. The American traders conduct themselves at Canton 
vlth more discretion, and are regarded by the Chinese authorities with less 
jealousy, than the agents of the English company. The Portuguese, for 
upwards of a century, carried on the trade with the Eastern seas, without 
the intervention of a company, and with greater success than any of their 
cotemporaries. 



CHAP. XVII. ON PRODUCTION. 131 

that a sufficient motive for excepting the trade to that part of 
the world from the general rules, that are acted upon in all 
other branches of commerce? Are we to invest an exclusive 
company with the sole conduct of the import or export trade 
between Germany and France, for the sole purpose of getting 
our cottons and woollens from Germany at a cheaper rate? If 
the commerce of the East were put upon the same footing as 
foreign trade in general, the price of any one article of its pro- 
duce could never long remain much above the cost price of 
production in Asia; for the rise of price would operate as a 
stimulus to increased production, and the competition of sellers 
would soon be on a par with that of purchasers. 

But, admitting the advantage of buying cheap to be as sub- 
stantial as it is represented, the nation at large has a right to 
participate in that cheapness; the home consumers ought t.o buy 
cheap, as well as the company. Whereas in practice it is just 
the reverse, and for a very simple reason: the company is not 
exempt from competition as a purchaser, for other nations are 
its competitors: but as a seller it is exempt; for the rest of the 
nation can buy the articles it deals in no where else, the im- 
port by foreigners being wholly prohibited. It asks its own 
price, and can command the market, especially if it be atten- 
tive to keep the market always understocked, as the English 
call it; that is, if the supply be just so far short of the demand, 
as to keep alive the competition of purchasers.* 

In this manner, trading companies not only extort usurious 
profits from the consumer, but moreover saddle him with all 
the fraud and mismanagement inseparable from the conduct of 
these unwieldy bodies, with their cumbrous organization of di- 
rectors and factors without end, dispersed from one extremity 
of the globe to the other. The only check to the gross abuses 
of these privileged bodies is the smuggling or contraband 
trade, which, in this point of view, may lay claim to some de- 
gree of utility. 

This analysis brings us to the point in question; are the 
gains of the privileged company, national gains? Undoubtedly 
not; for they are wholly taken from the pockets of the nation 
itself. The whole excess of value, paid by the consumer, be- 
yond the rate at which free-trade could afibrd the article, is 
not a value produced, but so much existing value, presented 
by the government to the trader at the consumer's expense. It 
will probably be urged, that it must at least be admitted, that 
this profit remains and is spent at home. Granted: but by 
whom is it spent? that is the point. Should one member of a 
family possess himself of the whole family income; dress him- 
self in fine clothes, and devour the best of every thing, what 
consolation would it be to the rest of the family, were he to 

* It is well known, that, when the Dutch were in possession of the Mo- 
luccas, they were in the habit of burning part of the spices they produced, 
for the sake of keeping up the price in Europe. 



132 ON PRODUCTION. book i. 

say, what signifies it whether you or 1 spend the money? the 
income spent is the same, so it can make no difierence. 

The exclusive as well as usurious profits of monopoly would 
soon glut the privileged companies with wealth, could they 
depend upon the good management of their concerns; but the 
cupidity of agents, the long pendency of distant adventures, 
the difficulty of bringing factors abroad to account, and the in- 
capacity of those interested, are causes of ruin in constant ac- 
tivity. Long and delicate operations of commerce require 
superior exertion and intelligence in the parties interested. And 
how can such qualities be expected in shareholders amounting 
sometimes to several hundreds, all of them having other mat- 
ters of more personal importance to look after?* 

Such are the consequences of privileges granted to trading 
companies: and these consequences, it must be observed, are 
in the nature of things inseparable; circumstances may reduce 
their efficacy, but can never remove them altogether. The 
English East India Company has met with more success than 
the three or four French ones, that at different times made the 
experiment. t This company is sovereign as well as merchant; 
and we know by experience, that the most destestable govern- 
ments may last for several generations: witness that of the 
Mamelukes in Egypt. 

There are some minor evils also incident to commercial pri- 
vileges. The grant of exclusive rights frequently exiles from 
a country a branch of industry and a portion of capital, that, 
would readily have taken root there, but are compelled to set- 
tle abroad. Towards the close of the reign of Louis XIV. the 
French East India Company, being unable to support itself, 
notwithstanding its exclusive rights, transferred the exercise 
of its privileges to some speculators of St. Malo, in considera- 
tion of a small share in their profits. The trade began to re- 
vive under the influence of this comparative liberty, and 
would on the expiration of the company's charter, in 1714, 
have been as active as the then melancholy condition of France 
would have permitted: but the company petitioned for a re- 
newal, and obtained one, pending the ventures of some private 
traders. Soon afterwards, a vessel of St. Malo, commanded 
by a Breton of the name of Lamerville, appeared upon the 
French coast, on its return from the East Indies, but was re- 
fused permission to enter the harbour, on the plea, that it was 

• The answer of La Bourdonnais to one of the directors of the French 
East India Company, who asked how it was, that he had managed his own 
interests so much better than those of the company, will long be remember- 
ed: — " Because," said he, '• I manage my own affairs according to the dic- 
tates of my own judgment, but am obhged to follow your instructions in 
regard to those of the company." 

f The first French East India Company was established in the reign of 
Henry IV. A. D. 1604, at the instance of a Fleming of the name of Gerard 
Leroi, It met with no success. 



CHAP. XVII. ON PRODUCTION. 133 

in contravention of the company's rights. Consequently, he 
was compelled to prosecute his voyage to the nearest port in 
Belgium, and carried his vessel into Ostend, where he disposed 
of the cargo. The governor of the Low Countries, hearing of 
the enormous profits he had made, proposed to the captain a 
second voyage, with a squadron to be fitted out for the express 
purpose; and Lamerville afterwards performed many similar 
voyages for different employers, and laid the foundation of the 
Ostend Company.* 

Thus, the French consumer must necessarily have suffered 
by this monopoly: and so, in fact, he did. But at any rate, it 
will be supposed, the company must have benefited. Just the 
contrary: the company was itself ruined; in spite of the mono- 
poly of tobacco, the lotteries, and other subsidiary grants be- 
stowed on them by the government.t " In short," says Vol- 
taire, f " all that remained to France in the East was, the re- 
gret of having, in the course of forty years, squandered enor- 
mous sums, to bolster up a company, that never made a six- 
pence profit, never made any dividend from the resources of 
its commerce, either to its shareholders or creditors; and sup- 
ported its establishments in India, solely by the underhand 
practice of pillage and extortion upon the natives." 

The only case in which the establishment of an exclusive 
company is justifiable, is, when there is no other way of com- 
mencing a new trade with distant or barbarous nations. In 
that case, the charter is a kind of patent of invention, and con- 
fers an advantage, commensurate to the extraordinary risk and 
expense of the first experiment. The consumers have no rea- 
son to complain of the dearness of products, which, but for the 
grant of the charter, they would either not have enjoyed at all, 
or have enjoyed at a still dearer rate. But such grants should, 
like patents, be limited to such duration only, as will repay 
and fully indemnify the adventurers for the advances and risk 
incurred. Any thing further is a mere free gift to the compa- 
ny, at the expense of the nation at large, who have a natural 
right to get what they want wherever they can, and at the low- 
est possible price. 

What has been said with respect to commercial is equally 
applicable to manufacturing privileges. The reason why gov- 
ernments are so easily entrapped into measures of this kind is, 
partly because they see a statement of large profits, and do not 
trouble themselves to inquire whence they are derived; and 
partly because this apparent profit is easily ruduced to numeri- 
cal calculation, no matter whether wrong or right, correct or 
incorrect; whereas the loss and mischief resulting to the nation 

* Taylor's Letters on India. 

t Raynal. Hist. phil. et. polit. des Esiabl. des Euroviens, dans les deux 
Indes, liv. iv. § 19. 

t Sicde de Louis XV. 



134 ON PRODUCTION. book i. 

are infinitely subdivided amongst the members of the commu- 
nity, and operate after all in a very indirect, complex, and 
general way, so as to escape and defy calculation. Some wri- 
ters maintain arithmetic to be the only sure guide in political 
economy; for my part, I see so many detestable systems built 
upon arithmetical statements, that I am rather inclined to re- 
gard that science as the instrument of national calamity. 



SECTION IV. 

Of Regulations affecting the Corn Trade. 

It would seem that the general principles, which govern the 
commerce of all other commodities, should be equally applica- 
ble to the commerce of grain. But grain, or whatever else 
may happen to be the staple article of human subsistence to 
any people, deserves more particular notice. 

It is universally found, that the numbers of mankind increase, 
in proportion to the supply of subsistence. The abundance 
and cheapness of provisions are favourable to the advance of 
population; their scarcity is productive of the opposite effect;* 
but neither cause operates so rapidly, as the annual succession 
of crops. The crop of one year may, perhaps, exceed or fall 
short of the usual average, by as much as 1-5 or 1-4; but a 
country, that, like France, has thirty millions of inhabitants 
one year, can not have thirty-six millions the next; nor could 
its population be reduced to twenty-four millions in the space 
of one year, without the most dreadful degree of suffering. 
Therefore it is the ordinance of nature, that the population 
shall one year be superabundantly supplied with subsistence, 
and another year be subjected to scarcity in some degree or 
other of intensity. 

And so, indeed, it is with all other objects of consumption; 
but, as the most of them are not absolutely indispensable to 
existence, the temporary privation of them amounts not to the 
absolute extinction of life. The high price of a product, which 
has wholly or partially failed at home, is a powerful stimulus 
to commerce to import it from a greater distance and at a 
greater expense. But it is unsafe to leave wholly to the pro- 
vidence of individuals the care of supplying an article of such 
absolute necessity; the delay of which, but for a few days, may 
be a national calamity; the transport of which exceeds the or- 
dinary means of commerce; and whose weight and bulk would 
make its distant transport, especially by land, double, or triple 
its average price. If the foreign supply of corn be relied upon, 
it may happen to be scarce and dear in the exporting and the 

* Vide infra. Book II. chap. 11. 



CHAP. XVII. ON PRODUCTION. 135 

importing country at the same moment. The government of 
the exporting country may prohibit the export, or a maritime 
war may interrupt the transport. But the article is one the 
nation can not do without; or even wait for a few days longer. 
Delay is death to a part of the population at the least. 

For the purpose of equalizing the average consumption to the 
average crop, each family ought literally to lay by, in years 
of plenty, for the deficiency of years of scarcity. But such 
providence can not be reckoned upon in the bulk of the popu- 
lation. A great majority, to say nothing of their utter want of 
foresight, are destitute of the means of keeping such a store in 
reserve sometimes for several years together; neither have 
they the accommodations for housing it, or the means of tak- 
ing it along with them on a casual change of abode. 

Can speculative commerce be depended upon for this re- 
serve against a deficiency? At first sight it might appear that it 
could, that self-interest would be an adequate motive; for the 
difference of the price of corn in years of abundance and those 
of scarcity is very great. But the recurrence of the oscilla- 
tion is too irregular in distance of time, and too infrequent 
also to give rise to a regular traffic, or one that can be repeated 
at pleasure. The purchase of the grain, the number and size 
of the storehouses, require a very large advance of capital and 
a heavy arrear of interest: it is an article, that must be repeat- 
edly shifted and turned, and is much exposed to fraud and 
damage, as well as to popular violence. All these are to be 
covered by a profit of rare occurrence. Wherefore, it is pos- 
sible, that the article may not hold out sufficient temptation to 
the speculator, although this would be the most commendable 
kind of speculation, being framed upon the principle of buying 
from the producer when he is eager to sell, and selling to the 
consumer when he finds it difficult to purchase. 

In default of the individual providence of the consumer, and 
of speculative accumulation and reserve, neither of which it 
would seem can be safely depended upon, can the public au- 
thority, as representing the aggregate interest, undertake the 
charge of providing against a scarcity with any prospect of 
success? I am aware, that, in a few very limited communities, 
blessed with a very economical government, like some of the 
Swiss cantons, public granaries for storing a casual surplus 
have answered the purpose well enough. But I should pro- 
nounce them impracticable in large and populous countries. 
The advance of capital and its accruing interest would affect 
the government in the same manner as private speculators, 
and even in a greater degree; for there are few governments, 
that can borrow on such low terms as individuals in good 
credit. The difficulties of managing a commercial concern of 
buying, storing, and re-selling to so large an extent, would be 
still more insuperable. Turgot, in his letters on the com- 
merce of grain, has clearly proved, that, in matters of this kind, 
a government never can expect to be served at a reasonable 



136 ON PRODUCTION. book i. 

rate; all its agents having an interest in swelling its expendi- 
ture, and none of them in curtailing. It would be utterly im- 
possible to answer for the tolerable conduct of a business left 
to the discretion of agents without any adequate control, whose 
actions are, for the most part, governed by the superior dig- 
nitaries of the state, who seldom have either the knowledge 
or condescension requisite for such details. A sudden panic 
in the public authorities might prematurely empty the grana- 
ries; a political measure, or a war, divert their contents to 
quite a different destination. 

Generally speaking, it appears that there is no safe depend- 
ence for a reserve of supply against a season of scarcity, unless 
the business be confided to the discretionary management of 
mercantile houses of the first capital, credit, and intelligence, 
willing to undertake the purchase, and the filling and replen- 
ishment of the granaries upon certain stipulated terms, and 
with the prospect of such advantages, as may fairly recom- 
pense them for all their trouble. The operation would then 
be safe and effectual, for the contractors would give security 
for due performance; and it would also be cheaper executed in 
this way than in any other. Different establishments might 
be contracted with for the different cities of note; and these 
being thus supplied in times of scarcity from the stores in re- 
serve, would no longer drain the country of the subsistence 
destined to the agricultural population, (a) 

Public stores and granaries are after all but auxiliary and 
temporary expedients of supply. The most abundant and ad- 
vantageous supply will always be, that furnished by the ut- 
most freedom of commerce, whose duties in respect to grain 
consists chiefly in transporting the produce from the farm-yard 
to the principal markets, and thence in smaller quantities from 
the markets of the districts where it is superabundant to those 
of others, that may be scantily supplied; or in exporting when 
cheap, and importing when dear. 

Popular prejudice and ignorance have universally regarded 
with an evil eye those concerned in the corn-trade; nor have 
the depositaries of national authority been always exempt 
from similar illiberality. The main charge against them is, 

(a) It is singular, that, after the very careful revision, which this section 
has undergone in the last edition, this paragraph should have been suffered 
to stand. Indeed, one would almost suspect that our author had left it ra- 
ther in compliment to the popular notions of his own country, than from 
personal conviction of the propriety of the measure he suggests; which is 
impugned by the whole context of the remaining part of the section. The 
best security against famine is, the total absence of all official interference 
whatever, whether permanent or temporary, as the example of Great Bri- 
tain will testify. There the government has at all times abstained from tak- 
ing a personal part in the supply either of town or country, and has limited 
Us interference to them ere export and import, which have only been cramp- 
ed and impeded by its ill-advised operations. Another important ground 
of security is, the variety of the national food. Upon this our author has 
observed. Fide, infra. T. 



CHAP. XVII. ON PRODUCTION. 137 

that they buy up corn with the express purpose of raising its 
price, or at least of making an unreasonable advantage upon 
the purchase and resale, which is in effect so much gratuitous 
loss to the producer and consumer. 

First, I would ask, what is meant by this charge? If it be 
meant to accuse the dealers of buying in plentiful seasons when 
corn is cheap, and laying by in reserve against seasons of 
scarcity, we have just seen, that this is a most beneficial opera- 
tion, and the sole means of accommodating the supply of so 
precarious an article to the regularity of an unceasing demand. 
Large stores of grain laid in at a low price contribute power- 
fully to place the subsistence of the population beyond risk 
of failure, and deserve not only the protection, but the en- 
couragement of the public authorities. But, if it be meant to 
charge the corn-dealers with buying up on a rising market and 
on the approach of scarcity, and thereby enhancing the scarci- 
ty and the price, although I admit, that this operation has not 
the same recommendation of utility, and that the consumer is 
saddled with the additional cost of the operation without any 
direct equivalent benefit, for in this instance the deficiency of 
one year is not made good by the hoarded surplus of a pre- 
ceding one, yet I can not think it has ever been attended with 
any very alarming or fatal consequences. Corn is a commo- 
dity of most extended production; and its price can not be ar- 
bitrarily raised, without disarming the competition of an in- 
finity of sellers, and without an extent of dealing and of agency 
scarcely practicable to individuals. It is, besides, a most cum- 
bersome and inconvenient article in comparison with its price, 
and consequently most expensive and troublesome in the car- 
riage and warehousing. A store of any considerable value 
can not escape observation.* And its liability to damage or 
decay often makes sales compulsory, and expose the larger 
speculators to immense loss. 

Speculative monopoly is, therefore, extremely difficult, and 
little to be dreaded. The kind of engrossment most prejudi- 
cial, as well as most difficult of prevention, is that practised by 
the domestic prudence of individuals in apprehension of a 
scarcity. Some, from excess of precaution, lay by rather more 
than they want; while farmers, farming proprietors, millers 
and bakers, who habitually keep a stock on hand, take care 
somewhat to swell that stock, in the idea that they shall sell 
to a profit whatever surplus there may be; and the infinite 
number of these petty acts of engrossment makes them greatly 
exceed in the aggregate all the united efforts of speculation. 

* Lamarre, who was a great advocate for the interference of authority in 
these matters, and was commissioned by the government, in the scarcities 
of the years 1699 — 1709, to discover all concealed hoards, and bring to light 
the monopolists, frankly confesses, that he was not able to make seizure of 
so much as 100 quarters altogether. Traite de la Police, Supplement au 
tome 11. 

25 



138 ON PRODUCTION. book i. 

But what if it should turn out after all, that even the selfish 
and odious views of such speculators are productive of soine 
good? When corn is cheap, it is consumed with less provi- 
dence and frugality, and used as food for the domestic animals. 
The distant prospect of scarcity, or even a slight rise of price, 
is insufficient to check this improvidence betimes. If the great 
holders shut up their stores, however, the consequent anticipa- 
tion of a rise of price immediately puts the public on their 
guard, and awakens the particular frugality and care of the 
little consumers, of whom the great mass of consumption is 
composed. Ingenuity is set at work to find a substitute for 
the scarce article of food, and not a particle is wasted. Thus, 
the avarice of one part of mankind operates as a salutary check 
upon the improvidence of the rest; and, when the stock with- 
held at length appears in the market, its quantity tends to lower 
the price in favour of the consumer. 

With regard to the tribute, which the dealer is supposed to 
exact from both producer and consumer, it is a charge that 
will attach with equal justice upon every branch of commerce 
whatsoever. There would be some meaning in it, could pro- 
ducts reach the hands of the consumer without any advance 
of capital, without warehouses, trouble, combination, or any 
kind of difficulty. But, so long as difficulties shall exist, no- 
body will be able to surmount them so cheaply, as those who 
make it their special business. Legislation should take an en- 
larged view of commerce in the aggregate, small and great; it 
will find its agents busied in traversing the whole surface of 
the territory, watching every fluctuation of demand and sup- 
ply, adjusting the casual or local deficiency of price to meet 
the charges of production, and excess of price above the ca- 
pacity of consumption. Is it to the cultivator, to the con- 
sumer, or to the public administration, that we can safely 
look for so beneficial and powerful an agency? Extend, if 
you please, the facility of intercourse, and particularly the ca- 
pacities of internal navigation, which alone is suited to the 
transport of a commodity so cumbrous and bulky as grain ; vigi- 
lantly watch over the personal security of the trader; and then 
leave him to follow his own track. Commerce can not make 
good the failure of the crop; but it can distribute whatever 
there may be to distribute, in the manner best suited to the 
wants of the community, as well as to the interests of pro- 
duction. And doubtless it was for this reason, that Smith 
pronounced the labour of the corn dealer to be favourable to 
the production of corn, in the next degree to that of the culti- 
vator himself. 

The prevalence of erroneous views of the production and 
commerce of articles of human subsistence have led to a world 
of mischievous and contradictory laws, regulations, and ordi- 
nances, in all countries, suggested by the exigency of the 
moment, and often extorted by popular importunity. The 



CHAP. xyii. ON PRODUCTION. 139 

danger and odium thus heaped upon the dealers in grain have 
frequently thrown the business into the hands of inferior per- 
sons, qualified neither by information nor ability for the busi- 
ness; and the usual consequence has followed; namely, that 
the same traffic has been carried on in secret, and at far 
greater expense to the consumers; the dealers to whom it was 
abandoned being of course obliged to pay themselves for all 
the risk and inconvenience of the occupation. 

Whenever a maximum of price has been affixed to grain, it 
has immediately been withdrawn or concealed. The next 
step was, to compel the farmers to bring their grain to market, 
and prohibit all private sales. These violations of property, 
with all their usual accompaniments of inquisitorial search, 
personal violence, and injustice, have never affiDrded any con- 
siderable resource to the government employing them. In po- 
lity as well as morality, the grand secret is, not to constrain 
the actions, but to awaken the inclinations of mankind. Mar- 
kets are not to be supplied by the terror of the bayonet or the 
sabre.* 

When the national government attempts to supply the popu- 
lation by becoming itself a dealer, it is sure to fail in satisfy- 
ing the national wants itself, and at the same time to extin- 
guish all the resources, that freedom of commerce would offer; 
for nobody else will knowingly embark in a losing trade, 
though the government may. 

During the scarcity prevalent throughout many parts of 
France, in the year 1775, the municipalities of Lyons, and 
some other towns attempted to relieve the wants of the inhabi- 
tants, by buying up corn in the country, and re-selling it at a 
loss in the towns. To defray the expense of this operation, 
they at the same time obtained an increase of the octroi, or 
tolls upon goods entering their gates. The scarcity grew 
worse and worse, for a very obvious reason; the ordinary 
dealers naturally abandoned markets, where goods were sold 
below the cost price, and which they could not resort to with- 
out moreover paying extra toll upon entry. t 

* The French Minister of tlie Interior, in his report presented in De- 
cen\ber, 1817, admits that the markets were never so ill supplied, as im- 
mediately after the decree of May 4, 1812, prohibiting all sales out of open 
market. The consumers crowded thither, having no where else to resort 
to; while the farmers, being obliged to sell below the current price, pre- 
tended to have nothing for sale. 

•j- In all ages and in ail places this effect will follow. The Emperor Ju- 
lian, A. D. 362, caused to be sold at Antioch 420,000 modii of wheat im- 
ported from Chalcis and Egypt for the purpose, at a price lower than the 
average of tlie market; the supplies of private commerce were immediately 
stopped in consequence, and the famine was aggravated. Vide Gibbon, c. 
24. The principles of Political Economy are eternal and immutable; but 
one nation is acquainted with them and another not. 

The metropolis of the Roman empire was alwa3's destitute of subsistence, 
when the government; withheld the gratuitous largesses of grain drawn 



140 ON PRODUCTION. book i. 

The more necessary an article is, the more dangerous it is 
to reduce its "price below the natural level. An accidental 
dearness of corn, though doubtless a most unwelcome occur- 
rence, is commonly brought about by causes out of all human 
power to remove.* There is no wisdom in heaping one ca- 
lamity upon another, and passing bad laws because there has 
been a bad season. 

Governments have met with no better success in the matter 
of importation, than in the conduct of internal commerce. The 
enormous sacrifices made by the commune of Paris and the 
general government, to provision the metropolis in the winter 
of 1816-17 with grain imported from abroad, did not protect 
the consumer from an exorbitant advance in the price of bread, 
which was besides deficient both in weight and quality; and 
the supply was found inadequate after all.t 

On the subject of bounties on import, it is hardly necessary 
to touch. The most effectual bounty is the high price of the 
article in the country, where the scarcity occurs, amounting 
sometimes to as much as 200 or 300 per cent. If this be not 
sufficient to tempt the importer, I know of no adequate in- 
ducement that the government could hold out to him. 

Nations would be less subject to famine, were they to em- 
ploy a greater variety of aliments. When the whole popula- 
tion depends upon a single product for subsistence, the misery 
of a scarcity is extreme. A deficiency of corn in France is as 
bad as one of rice in Hindustan. When their diet consists of 
many articles, as butcher's meat, poultry, esculent roots, ve- 
getables, fruits, fish, &c., according to local circumstances, the 
supply is less precarious; for these articles seldom fail all at a 
time. J 

from a tributary world; and these very largesses were the real cause of the 
scarcity felt and complained of. 

• One of the most frequent causes of famine is, indeed, of human crea- 
tion, and that is war, which both interrupts production, and wastes exist- 
ing- products. This cause is, therefore, within human control; but we can 
hardly expect it to be effectually exerted, until g-overnments shall entei-- 
tain more accurate notions of their own, as well as of the national interests; 
and nations be weaned of the puerihty of attaching- sentiments of admira- 
tion and glory to perils encountered without necessity or reason. 

f It is mere mockery to talk of the paternal care, solicitude, or benefi- 
cence of government, which are never of any avail, either to extend the 
powers of authority, or to diminish the suffering of the people. The so- 
licitude of the government can never be doubted; a sense of intense per- 
sonal interest will always guide it to the conservation of social order, by 
which it is sure to be the principal gainer. And its beneficence can have 
little merit; for it can exert none, but at the expense of its subjects. 

\ Custom, the tyrant of weak minds, and of such, unfortunately, is the 
great mass of mankind, and of the lower classes in particular, is always a 
formidable opponent to the introduction of a new article of food. I have 
observed in some provinces of France, a decided distaste for the paste pre- 
pared in the Italian method, although a most nutritious substance, and wel'l 



CHAP. XVII. ON PRODUCTION. 141 

Scarcity would also be of less frequent recurrence, if more 
attention were paid to the dissemination and perfection of the 
art of preserving, at a cheap rate, such kinds of food, as are 
offered in superabundance at particular seasons and places; 
fish for instance; their periodical excess might in this way be 
made to serve for times of scarcity. A perfect freedom of in- 
ternational maritime intercourse would enable the inhabitants 
of the temperate latitudes to partake cheaply of those produc- 
tions, that nature pours forth in such profusion under a tropi- 
cal sun.* I know not how far it would be possible to preserve 
and transport the fruit of the banana; but the experiment has 
in a great measure succeeded with respect to the sugar-cane, 
which furnishes, in a thousand shapes, an agreeable and whole- 
some article of diet, and is produced so abundantly by all parts 
of the world, lying within 38° of latitude, that, but for our pre- 
sent absurd legislative provisions, it might be had much 
cheaper than butcher's meat, and for the same price as many 
indigenous fruits and vegetables. t 

To return to the corn-trade, I must protest against the in- 
discriminate and universal application of the arguments I have 
adduced to show the benefits of libert)'-. Nothing is more dan- 
gerous in practice, than an obstinate unbending adherence to 

calculated for keeping the flour sound and good. Probably, nothing but 
the frequent recurrence of scarcity during the political agitations of the 
nation could have extended the cultivation and consumption of the potatoe, 
so as to have made it a staple article of food in many districts. The appe- 
tite for that vegetable would be still more general, were a little more at- 
tention bestowed upon preserving and ameliorating the species, and the 
practice of raising it from the seed rather than the root more strictly ob- 
served. 

* Humboldt tells us, in his Essai pal. sur la nouvelle Espagne, c. ix., that 
an equal area of land in that country will produce bananas, potatoes, and 
wheat, in the following proportions of weight: — 

Kilogrammes. 
Bananas ... ..... 106,000 

Potatoes 2,400 

Wheat - - 800 

The product of bananas is, therefore, in weight, 133 times that of wheat, 
and 44 times that of potatoes. But a large deduction must be made for the 
aqueous particles of the banana. 

A demi-hedare of fertile land in Mexico, by proper cultivation of the 
larger species of banana, may be made to feed more than 50 individuals; 
whereas the same extent of surface in Europe, supposing it to yield eight- 
fold, will give an annual product of no more than 576 Mis. of wheat flour, 
which is not enough for the sustenance of two persons. It is natural that 
Europeans, on their first arrival in a tropical region, should be surprised at 
the very limited extent of cultivated ground, encirchng the crowded cabins 
of the native population. 

f The same author informs us, that, In St. Domingo, a superficial square 
of 3403 toises, is reckoned at an average capable of producing 10,000 lbs. 
weight of sugar; and that the total consumption of that commodity in 
France, taking it at the fair average of 20,000,000 Mis., might be raised 
upon a superficial area of seven square leagues. 



142 ON PRODUCTION. book i, 

system, particularly in its application to the wants and errors 
of mankind. The wiser course is, to approximate invariably 
to the standard of sound and acknowledged principles, to lead 
towards them by the never-failing influence of gradual and in- 
sensible attraction. It is well to fix beforehand a maximum 
of price beyond which exportation of grain shall either be pro- 
hibited, or subjected to heavy duties; for, as smuggling can 
not be prevented entirely, it is better that those who are re- 
solved to practise it, should pay the insurance of the risk to 
the state, than to individuals. 

We have hitherto regarded the inflated price of grain as the 
only evil to be apprehended. But England, in 1815, was 
alarmed by a prospect of an opposite evil; viz: that its price 
would be reduced too low, by the influx of foreign grain. The 
production of this article is, like that of every other, much 
more costly in England than in the neighbouring states; owing 
to a variety of causes, which it is immaterial here to explain; 
amongst others, chiefly to the exorbitance of her taxation. — 
Foreign grain could be sold in England at two-thirds of its 
cost price to the English grower. It, therefore, became a 
most important question, whether it were better to permit the 
free importation, and thus, by exposing the home producer to 
a ruinous competition with the foreign grower, to render him 
incapable of paying his rent and taxes, to divert him from the 
cultivation of wheat altogether, and place England in a state 
of dependence for subsistence upon foreign, perhaps hostile 
nations; or, by excluding foreign grain from her markets, to 
give a monopoly to the home producer at the expense of the 
consumer, thereby augmenting the difiiculty of subsistence to 
the labouring classes, and, by the advanced price of the ne- 
cessaries of life, indirectly raising that of all the manufactured 
produce of the country, and proportionately disabling it to 
sustain the competition of other nations. 

This great question has given rise to the most animated con- 
test both of the tongue and the pen; and the obstinate con- 
tention of two parties, each of which had much of justice on 
its side, leaves the by-standers to infer, that neither has chos- 
en to notice the grand cause of mischief; that is to say, the 
necessity of supporting the arrogant pretensions of England 
to universal influence and dominion, by sacrifices out of all 
proportion to her territorial extent. At all events, the great 
acuteness and intelligence, displayed by the combatants on 
either side, have thrown new light upon the interference of 
authority in the business of the supply of grain, and have 
tended to strengthen the conclusion in favour of commercial 
liberty. 

The substance of the argument of the prohibitionists may 
be reduced to this: that it is expedient to encourage domestic 
agriculture, even at the expense of the consumer, to avoid the 
risk of starvation by external means j which is seriously to be 



CHAP. XVII. ON PRODUCTION. 143 

apprehended on two occasions in particular; first, when the 
power of influence of a belligerent is able to intercept or check 
the import, which might become necessary; secondly, when 
the corn growing countries themselves experience a scarcity, 
and are obliged to retain the whole of their crops for their own 
subsistence.* 

It was replied by the partisans of free-trade, that, if England 
were to become a regular and constant importer of grain, not 
one, but many foreign countries would grow into a habit of 
supplying her: the raising of corn for her market in Poland, 
Spain, Barbary, and North America, would be more exten- 
sively practised, and the sale of their produce would become 
equally indispensable to them, as the purchase would be to 
England: that even Buonaparte, the most bitter enemy En- 
gland had ever encountered, had taken her money for the 
licence to export corn: that crops never fail at the same time 
all over the world; and that an extensive commerce in grain 
would lead to the formation of large stores and depots, which 
will ofier the best possible security against the recurrence of 
scarcity; and that, accordingly, as they asserted, there are no 
countries less subject to that calamity, or even to violent fluc- 
tuations of price, than those that grow no corn at all; for which 
they cited the example of Holland, and other nations similar- 
ly circumstanced, t 

However, it can not be disputed that, even in countries best 
able to reckon on commercial supply, there are many serious 
inconveniences to be apprehended from the ruin of internal 
tillage. Subsistence is the primary want of a nation, and it is 
neither prudent nor safe to become dependent upon distant 
supply. Admitting that laws, which, for the protection of 
the agricultural, prohibit the import of grain to the prejudice 
of the manufacturing interest, are both unjust and impolitic, it 
should be recollected that, on the other hand, excessive taxa- 
tion, loans, overgrown establishments, civil, military, or diplo- 
matic, are equally impolitic and unjust, and fall more heavily 
upon agriculture than upon manufacture. Perhaps one abuse 
may make another necessary, to restore the equilibrium of pro- 
duction, otherwise industry would abandon one branch, and 
take exclusively to another, to the evident peril of the exist- 
ence of society. 

* Malthus. Inquiry into the Nature and Progress of Rent. Grounds of 
an Opinion, &c. on Foreign Corn. 

f Ricardo. Essay 07i the Influence of the Low Price of Corn, &,c. 



144 ON PRODUCTION. book i. 



CHAPTER XVIII. 



OP THE EFFECT UPON NATIONAL WEALTH, RESULTING FROM 
THE PRODUCTIVE EFFORTS OF PUBLIC AUTHORITY. 

There can be no production of new value, consequently no 
increase of wealth, where the product of a productive concern 
does not exceed the charge of production.* Thus, whether 
government or individuals be the adventurers in the losing 
concern, it is equally ruinous to the nation, and there is so 
much less value in the country. 

It is of no avail to pretend, that, although the government 
be a loser, its agents, tne industrious people, or the workmen it 
employs, have made a profit. If the concern can not support 
itself and pay its own way, the receipt must fall short of the 
outlay, and the difference fall upon those, who supply the ex- 
penditure of the state; that is to say, the tax-payers.t 

The manufacture of Gobelin tapestry, carried on by the go- 
vernment of France, consumes a large quantity of wool, silk, 
and dyeing-drugs; furthermore, it consumes the rent of the 
ground and buildings, as well as the wages of workmen em- 
ployed; all which should be reimbursed by the product, which 
they are very far from being. This establishment, instead of 
a source of wealth to the nation at large, for the government 
is fully aware of the loss to itself, is, on the contrary, a source 
of perpetual impoverishment. The annual loss to the nation 
is the whole excess of the annual consumption of the concern, 
including wages, which are one item of consumption, above 
the annual product. The same may be said of the manufacture 
of porcelain at Sevres, and I fear of all manufacturing concerns 
carried on upon account of governments. 

We are told, that this is a necessary sacrifice; that otherwise 
the sovereign would be unprovided with objects of royal boun- 
ty and of royal splendour. This is no place to inquire, how 
far the munificence of the monarch and the splendour of his 
palaces contribute to the good government of the people. I 
take for granted that these things are necessary; yet, admit- 

* It must not be forgotten, that the consumption of the value of the pro- 
ductive agency, exerted in the course of production, is quite as real as that 
of the raw material. And under this term, productive agency, I comprise 
that of capital as well as of human beings. 

f This is equally true, when the government speculates with its own 
private or peculiar funds, as with the produce of the national lands; for 
whatever is thus expended might have gone towards alleviating the public 
burthens. 



CHAP. xvm. ON PRODUCTION. 145 

ting them to be so, there is no reason why the national sacri- 
fices, requisite to support this magnificence and liberality, 
should be aggravated by the losses incurred by a misdirection 
of the public means. A nation had much better buy outright 
what it thinks proper to bestow; it would probably obtain for 
less money an object full as precious; for individuals can al- 
ways undersell the government.* 

There is a further evil attending the productive efibrts of 
the government; they counteract the individual industry, not 
of tliose it deals with, for they take good care to be no losers, 
but of its competitors in production. The state is too formi- 
dable a rival in agriculture, manufacture and commerce; it has 
too much wealth and power at command, and too little care of 
its own interest. It can submit to the loss of selling below 
prime cost; it can consume, produce, or monopolize in very 
little time so large a quantity of products, as violently to de- 
range the relative prices of commodities: and every violent fluc- 
tuation of price is calamitous. The producer calculates upon 
the probable value of his product when ready for market; no- 
thing discourages him so much, as a fluctuation that defies all 
calculation. The loss he suflTers is equally unmerited, as the 
accidental gains that may be thrown into his hands. His un- 
merited gains, if any there be, are so much extra charge upon 
the consumer. 

There are some concerns, I know, which the government 
must of necessity keep in its own hands. The building of 
ships of war can not safely be left to individuals; nor, perhaps, 
the manufacture of gunpowder. However, in France, cannon, 
muskets, caissons, and tumbrils are bought of private makers, 
and seemingly with benefit. Perhaps the same system might 
be further extended. A government must act by deputy, by 
the intermediate agency of a set of people, whose interest 
is in direct opposition to its own; and they will of course at- 
tend to their own in preference. If it be so circumstanced as 
to be invariably cheated in its bargains, there is no need to 
multiply the opportunities of fraud, by engaging itself in pro- 
duction and adventure; that is to say, embarking in concerns, 
that must infinitely multiply the occasions of bargaining with 
individuals. 

But, although the public can scarcely be itself a successful 
producer; it can at any rate give a powerful stimulus to indi- 
vidual productive energy, by well-planned, well-conducted, 

* The same may be observed of commercial enterprises undertaken by 
the public authority. Daring the scai'city of ISie-ir, the French govern- 
ment bought up coi-n in foreign markets; the price of com rose to an exor- 
bitant rate in the home market, and the government resold at a very high 
rate, although somewhat below the average of the market. Individual 
traders would have found this a very profitable venture; but the govern- 
ment was out of pocket 21 million of francs and upwards. Rapport au 
Roi du 24: Dec. 1818. 
26 



146 ON PRODUCTION. book i. 

and well-supported public works, particularly roads, canals, 
and harbours. 

Facility of communication assists production, exactly in the 
same wa}'- as the machinery, that multiplies manufactured pro- 
ducts, and abridges the labour of production. It is a means 
of furnishing the same product at less expense, which has ex- 
actly the same effect, as raising a greater product with the 
same expense. If we take into account the immense quantity 
of goods conveyed upon the roads of a rich and populous em- 
pire, from the commonest vegetables brought daily to market, 
up to the rarest imported luxuries poured into its harbours 
from every part of the globe, and thence diffused, by means 
of land-carriage, over the whole face of the territory, we shall 
readily perceive the inestimable economy of good roads in the 
charges of production. The saving in carriage amounts to the 
whole value the article has derived gratuitously from nature, 
if, without good roads, it could not be had at all. Were it 
possible to transplant from the mountain to the plain the beau- 
tiful forests that flourish and rot neglected upon the inacessi- 
ble sides of the Alps and Pyrenees, the value of these forests 
would be an entirely new creation of value to mankind, a 
clear gain of revenue both to the landholder and the consumer 
also. 

Academies, libraries, public schools, and museums, founded 
by enlightened governments, contribute to the creation of 
wealth, by the further discovery of truth, and the diffusion of 
what was known before; thus empowering the superior agents 
and directors of production, to extend the application of hu- 
man science to the supply of human wants.* So likewise of 
travels, or voyages of discovery, undertaken at the public 
charge; the consequences of which have of late years been ren- 
dered particularly brilliant, by the extraordinary merit of 
those, who have devoted themselves to such pursuits. 

It is observable too, that the sacrifices made for the enlarge- 
ment of human knowledge, or merely for its conservatiouy 
should not be reprobated, though directed to objects of no im- 
mediate or apparent utility. The sciences have an universal 
chain of connexion. One which seems purely speculative 
must advance a step, before another of great and obvious prac- 
tical utility can be promoted. Besides, it is impossible to say 
what useful properties may lie dormant in an object of mere 
curiosity. When the Dutchman Otto Guericke struck out the 
first sparks of electricity, who would have supposed they would 
have enabled Franklin to direct the lightning, and divert it 
from our edifices, an exploit apparently so far beyond the 
powers of man? 

But of all the means, by which a government can stimulate 
production, there is none so powerful as the perfect security of 
person and property, especially from the aggressions of arbi- 

* Supra, chap. 6. 



CHAP. XVIII. ON PRODUCTION. 147 

trary power.* This security is of itself a source of public pros- 
perity, that more than counteracts all the restrictions hitherto 
invented for checking its progress. Restrictions compress 
the elasticity of production: but want of security destroys it 
altogether. (a) To convince ourselves of this fact, it is sufficient 
to compare the nations of western Europe, with those subject 
to the Ottoman power. Look at most parts of Africa, Arabia, 
Persia, and Asia Minor, once so thickly strownwith flourish- 
ing cities, whereof, as Montesquieu remarks, no trace now re- 
mains but in the pages of Strabo. The inhabitants are pillaged 
alike by bandits and pashas; wealth and population have van- 
ished; and the thinly scattered remnant are miserable objects 
of want and wretchedness. Survey Europe on the other hand; 
and though she is still far short of the prosperity she might at- 
tain, most of her kingdoms are in a thriving condition, in spite 
of taxes and restrictions innumerable; for the simple reason, 
that person and property are there pretty generally safe from 
violence and arbitrary exaction. 

There is one expedient, by which a government may give 
its subjects a momentary accession of wealth, that I have hither- 
to omitted to mention. I mean the robbery from another na- 
tion of all its moveable property, and bringing home the spoil, 
or the imposition of enormous tributes upon its growing pro- 
duce. This was the mode practised by the Romans in the 
later periods of the republic, and under the earliest emperors. 
This is an expedient of the same nature, as the acquirement of 
wealth by individual acts of illegal violence or fraud. There 
is no actual production, but a mere appropriation of the pro- 
ducts of others. I mention this method of acquiring wealth, 
once for all, without meaning to recommend it as either safe or 
honourable. Had the Romans followed the contrary system 

* Smith, in his recapitulation of the real causes of the prosperity of Great 
Britain, places at the head of the list, ' That equal and impartial adminis- 
tration of justice, whicli renders the rig'hts of the meanest British subject 
respectable to the greatest; and which, by securing' to every man the fruits 
of his own industry, gives the greatest and most effectual encouragement to 
every sort of industry.' JVealth of Nations, b. iv. c. 7. JPoivre, who was a 
great traveller, tells us, that he never saw a country really prosperous, 
which did not enjoy the freedom of industry, as well as security of person 
and property. 



(a) This security is in fact the main duty of all government. Were it not 
for the imperfections of human nature, — the propensity of mankind to vice, 
society might exist without government, for no man would injure another. 
It is to protect one against the vices of another, that the forms and institu- 
tions of society are established or supported; thus arming individual right 
with the aggregate of social strength. But the same moral imperfections, 
which drive mankind into the bonds of society, undermine and vitiate its in- 
stitutions. The very engine erected to protect, is directed to the injury 
and spoliation of individuals, and becomes occasionally more dangerous than 
individual wrong. T. 



148 ON PRODUCTION. book i. 

with equal perseverance, had they studied to spread civiliza- 
tion among their savage neighbours, and to establish a friend- 
ly intercourse that might have engendered reciprocal wants, 
the Roman power would probably have existed to this day. 



CHAPTER XIX. 



OF COLONIES AND THEIR PRODUCTS. 

Colonies are settlements formed in distant countries by an 
elder nation, called the mother country. When the latter 
wishes to enlarge its intercourse with a country, already popu- 
lous and civilized, whose territory it has, therefore, no hopes 
of getting into its own possession, it commonly contents itself 
with the establishment of a factory or mercantile residence, 
where its factors may trade, in conformity with the local regu- 
lations; as the Europeans have done in China and Japan. 
When colonies shake off their dependence upon the mother 
country, they become substantive and independent states. 

It is common for nations to colonize, when their pupulation 
becomes crowded in its ancient territorial limits; and when 
particular classes of society are exposed to the persecution of 
the rest. These appear to have been the only motives for co- 
lonization among the ancients; the moderns have been actu- 
ated by other views. The vast improvements in navigation 
have opened new channels to their enterprise, and discovered 
countries before unknown; they have found their way to ano- 
ther hemisphere, and to the most inhospitable climates, not 
with the intention of there fixing themselves and their posteri- 
ty, but to obtain valuable articles of commerce, and return to 
their native countries, enriched with the fruits of a forced, but 
yet very extensive production. 

It is worth while to note this difference of motive, which has 
made so marked a difference in the consequences of the two 
systems of colonization. I am strongly tempted to call one 
the colonial system of the ancients, and the other, the colonial 
system of the moderns; although there have been many colo- 
nies in modern times established on the ancient plan, of which 
those of North America are the most distinguished, (a) 



(a) The distinction of the two systems is more imag'inary than real. Most 
of the early establishments of the Europeans in the West were made with 
the view of absolute migration. The French at St. Doming-o, the English 
at Barbadoes, the Spaniards almost universally, settled without tke inten- 



CHAP. XIX. ON PRODUCTION. 149 

The production of colonies, formed upon the ancient system , 
is inconsiderable at the commencement; but increases with 
great rapidity. The colonists choose for their country of adop- 
tion a spot, where the soil is fertile, the climate genial, or the 
position advantageous for commercial purposes. The land is 
generally quite fresh, whether it have been the scene of a dense 
population long since extinguished, or merely the range of 
roving tribes, too small in number and strength to exhaust the 
productive qualities of the soil. 

Families, transplanted from a civilized to an entirely new 
country, carry with them theoretical and practical knowledge, 
which is one of the chief elements of productive industry: they 
carry likewise habits of industry, calculated to set these ele- 
ments in activity, as well as the habit of subordination, so es- 
sential to the preservation of social order; they commonly 
take with them some little capital also, not in money, but in 
tools and stock of different kinds: moreover, they have no 
landlord to share the produce of a virgin soil, far exceeding in 
extent what they are able to bring into cultivation for years 
to come. To these causes of rapid prosperity, should, per- 
haps, be superadded the chief cause of all, the natural desire of 
mankind to better their condition, and to render as comforta- 
ble as possible the mode of life they have adopted. 

The rapid increase of products in colonies, founded upon 
this plan would have been still more striking, if the colonists 
had carried with them a larger capital; but, as we have already 
observed, it is not the families favoured by fortune that emi- 
grate; those, who have the command of a sufficient capital to 
procure a comfortable existence in their native country, the 
scene of their halcyon days of infancy, will rarely be tempted 
to renounce habits, friends, and relations, to embark in what 
must always be attended with hazard, and encounter the in- 
separable hardships of a primitive establishment. This accounts 
for the scarcity of capital in newly-settled colonies; and is one 
reason why it bears so high a rate of interest there. 

In point of fact, capital is of much more rapid accumulation 
in new colonies, than in countries long civilized. It would 
seem as if the colonists, in abandoning their native country, 
leave behind them part of their vicious propensities; they cer- 
tainly carry with them little of that fondness for show, that 
costs so dear in Europe, and brings so poor a return. No qua- 
lities, but those of utility, are in estimation in the country they 
are going to; and consumption is limited to objects of rational 
desire, which is sooner satisfied than artificial wants. The 
towns are few and small; the life of agriculturists, which they 



tion of returning' home. The introduction of negro labour was an after- 
thought. Shivery was an estabhshed practice in all the ancient world; 
and colonies either made prize of the indigenes, or imported slaves from 
abroad, as soon as they were rich enough to buy them. T. 



150 ON PRODUCTION. book i. 

must necessarily adopt, is of all others the most economical; 
finally, their industry is proportionately more productive, and 
requires a smaller capital to work upon. 

The character of the colonial government usually accords 
with that of individuals; it is active in the execution of its du- 
ties, sparing of expense, and careful to avoid quarrels; thus 
there are few taxes, sometimes none at ; II; and, since the go- 
vernment takes little or nothing from the revenues of the sub- 
ject, his ability to multiply his savings, and consequently to 
enlarge his productive capital, is very great. With very little 
capital to begin upon, the annual produce of the colony very 
soon exceeds its consumption. Hence, the astonishingly rapid 
progress in its wealth and population; for human labour be- 
comes dear in proportion to the accumulation of capital; and 
it is a well-known maxim, that population always increases ac- 
cording to the demand.* 

With these data, there is no difficulty in explaining the 
causes of the rapid advance of such colonies. Among the an- 
cients we find, that Ephesus and Miletus in Asia Minor, Ta- 
rentum and Crotona in Italy, Syracuse and Agrigentum in 
Sicily, very soon surpassed the parent cities in wealth and 
consequence. The English colonies in North America, which 
bear the closest resemblance of any in our times to those of 
ancient Greece, presents a picture of prosperity less striking 
perhaps, but quite as deserving of notice, and still in the atti- 
tude of advance. 

It is the invariable practice of colonies, founded upon this 
plan, and without any thoughts of returning home, to provide 
themselves an independent government; and, even where the 
mother-country reserves the right of legislation, that right 
will sooner or later be dissolved by the operation of natural 
causes, and matters be brought to that footing, on which justice 
and regard to its real interest should have prompted her to 
put them originally. 

But, to proceed to the colonies formed upon the colonial 
system of the moderns; the founders of them were for the most 
part adventurers, whose object was, not to settle in an adopted 
country, but rapidly to amass a fortune, and return to enjoy it 
in their former homes, t 

The early adventurers of this stamp found ample gratifica- 
tion of their extravagant rapacity, first in the cluster of the 
Antilles, in Mexico and Peru, and subsequently in Brazil and 
in the Eastern Indies. After exhausting the resources previ- 
ously accumulated by the aborigines, they were compelled to 

* Vide infra, under the head of Population, Book II, c. 11. 

■}" There have been many exceptions in North America and elsewhere. 
The colonies of Spain and Portu.^al in the New World were of an ambig-u- 
ous character. Some of the colonists contemplated a return: others went 
to establish themselves and their posterity; but the whole plan of them has 
been subverted, since the commencement of the struggle for emancipation. 



CHAP. XIX. ON PRODUCTION. 151 

direct their industry towards discovering the mines of these 
new countries, and to turn to account the no less valuable pro- 
duce of their agriculture. Successive swarms of new colonists 
poured in from time to time, animated for the most part with 
some hope of return, with the desire, not of living in affluence 
upon the land they cultivated, and leaving behind them a con- 
tented posterity and a spotless name, byt of making inordinate 
gain to be afterwards enjoyed elsewhere: this motive led them 
to adopt a system of compulsory cultivation, of which negro 
slavery was the principal instrument. 

But let me ask, in what manner does slavery operate upon 
production? Is the labour of the slave less costly, than that of 
the free labourer? This is an important inquiry, originating in 
the influence of the modern system of colonization upon the 
multiplication of wealth. 

Stewart, Turgot, and Smith, all agree in thinking, that the 
labour of the slave is dearer and less productive than that of 
the freeman, — Their arguments amount to this: a man, that 
neither works nor consumes on his own account, works as lit- 
tle and consumes as much as he can: he has no interest in the 
exertion of that degree of care and intelligence, which alone 
can ensure success: his life is shortened by excessive labour, 
and his master must replace it at great expense: besides, the 
free workman looks after his own support; but that of the slave 
must be attended to by the master; and, as it is impossible for 
the master to do it so economically as the free workman, the 
labour of the slave must cost him dearer.* 

This position has been controverted by the following calcu- 
lation: — The annual expense of a negro in the West Indies, 
upon the plantations most humanely administered, does not 
exceed 300 yr. : add the interest of his prime cost, say at ten 
per cent, for it is a life interest; the average price of a negro 
is about 2000 /r., so that, allowing 200 fr. for the annual in- 
terest, the whole expense of a negro to his owner is but 500 fr. 
per annum, (a) a sum doubtless much inferior to the charge of 
free labour in that part of the world. An ordinary free la- 
bourer may earn there 5, 6, 1 fr. per day, or even more. 
Taking the medium of & Jr., and reckoning but 300 working 

* Stewart (Sir Jas.) Inquiry into the Frin. of Pol. Econ. book ii. c. 607". 
Turgot. Reflexions sur la Formation et la Distribution des Richesses, § 23. 
Smitli. Wealth of Nations, book i. c. 8. book iii. c. 2. 



(a) In this calculation no account has been taken of the housing of the 
negro, the tools and implements supphed to him, or the clothing furnished 
by the master; neither does our author seem to make any allowance for the 
probable increase of agricultural production, which free negro labour might 
afford. Free European labour would doubtless be far more expensive, were 
it practicable. The interest of money is also estimated far too low, and the 
infant and the aged must be provided for by the master. T. 



152 ON PRODUCTION. book i. 

days in the year, the annual wages will amount to ISOOyr. in- 
stead of 500. * 

Common sense will tell us, that the consumption of a slave 
must be less than that of a free workman. The master cares 
not if his slave enjoy life, provided he do but live; a pair of 
trowsers and a jacket are the whole wardrobe of the negro: 
his lodging a bare hut, and his food the manioc root, to which 
kind masters now and then add a little dried fish. A popula- 
tion of free workmen, taken one with another, has women, 
children, and invalids to support: the ties of consanguinity, 
friendship, love, and gratitude, all contribute to multiply con- 
sumption; whereas, the slave owner is often relieved by the 
effects of fatigue from the maintenance of the veteran: the ten- 
der age and sex enjoy little exemption from labour; and even 
the soft impulse of sexual attraction is subject to the avaricious 
calculations of the master. 

What is the motive, which operates in every man's breast 
to counteract the impulse towards the gratification of his wants 
and appetites? Doubtless, the providential care of the future. 
Human wants and appetites have a tendency to extend, — fru- 
gality to reduce consumption; and it is easy to conceive, that 
these opposite motives, working in the mind of the same in- 
dividual, help to counteract each other. But, where there is 
master and slave, the balance must needs incline to the side of 
frugality; the wants and appetites operate upon the weaker par- 
ty, and the motive of frugality upon the stronger. It is a well 
known fact, that the net produce of an estate in St. Domingo 
cleared off the whole purchase-money in six years; whereas 
in Europe the net produce seldom exceeds the -^-^ or -Jg- of the 
purchase money, and sometimes falls far short even of that. 
Smith himself elsewhere tells us that the planters of the 
English islands admit that the rum and molasses will defray 
the whole expenses of a sugar plantation, leaving the total 
produce of sugar as net proceeds: which, as he justly observes, 
is much the same as if our farmers were to pay their rent and 
expenses with the straw only, and to make a clear profit of all 
the grain. Now I ask, how many products are there, that ex- 
ceed the expenses of production in the same degree?(a) 

* It should be observed here, that the free labourers, who are so much 
better paid, are commonly engaged in occupations, which, though less la- 
borious, require a greater degree of intelUgence and personal skill. Tailors 
and watchmakers are generally free men. And the mere existence of 
slavery of itself enhances the price of free field-labour, by driving all com- 
petition out of the market. 



(fl) What reference can this inequality have to the relative position of 
the proprietor and the different productive agents one to another? It is a 
mere question of difference of interest of capital. Capital in the West 
Indies brings a return very different, in its ratio to rent or the profit of land, 
from what it yields in Europe. Land, the source of production, sells cheap, 



CHAP. XIX. ON PRODUCTION. 153 

Indeed, this very exorbitance of profit shows, that the in- 
dustry of the master is paid out of all proportion with that of 
the slave. To the consumer it makes no difference. One 
of the productive classes benefits by the depression of the rest; 
and that would be all, were it not that the vicious system of 
production, resulting from this derangement, opposes the in- 
troduction of a better plan of industry. The slave and the 
master are both degraded beings, incapable of approximating 
to the perfection of industry, and, by their contagion, degrad- 
ing the industry of the free man, who has no slaves at his com- 
mand. For labour can never be honourable, or even respecta- 
ble, where it is executed by an inferior cast. The forced and 
unnatural superiority of the master over the slave is exhibited 
in the ajSectation of lordl)^ indolence and inactivity: and the 
faculties of mind are debased in equal degree; the place of in- 
telligence is usurped by violence and brutality. 

I have been told by travellers of veracity and observation, 
that they consider all progress in the arts in Brazil and other 
settlements of America as utterly hopeless, while slavery shall 
continue to be tolerated. Those states of the North American. 
Union, which have prescribed slavery, are making the largest 
strides towards national prosperity. ' The inhabitants of the 
slave states of Georgia and Carolina raise the best cotton in 
the world, but can not work it up. During the last war with 
England, they were obliged to send it overland to New York 
to be spun into yarn. The same cotton is sent back at a vast 
expense to be consumed at the place of its original growth in 
a manufactured state.(a) This is a just retribution for the 
toleration of a practice, by which one part of mankind is made 
to labour, and subjected to the severest privation, for the 
benefit of another. Policy is in this point in accordance with 
humanity.(6) 

It remains yet to be explained, what are the consequences 



because of the greater unhealthiness of climate, insecurity of tenure, abun- 
dance, &c. &c. T. 

(a) So it is now from Hindustan, where labour is free and most abundant. 
Cotton will flow towards machinery, which has become too powerful for the 
competition of human labour, even where it is the cheapest. That is, there- 
fore, not the effect of the toleration of slavery in those states. T. 

(b) Therefore our author has come to this correct conclusion, his reason- 
ing is neither logical nor satisfactory; indeed, the whole of this important 
subject is dismissed with a precipitation little suited to its importance. 
There are two motives of human industry, the hope of enjoyment, and the 
fear of suff'ering. The slave is actuated principally by the latter, the free 
agent by the former. Neither of these motives should have been thus cur- 
sorily adverted to, in the analysis of actual production, but have been fairly 
set forth in the outset, immediately after the detail of the sources of pro- 
duction; being both of them the stimuli, which give activity to those sources. 
After all that our author and others have done, much yet remains for the 
organization of the science. T. 

27 



154 GN PRODUCTION. book i. 

of the commercial intercourse between the colony and the mo- 
ther country, in regard to production; always taking it for 
granted, that the colony continues in a state of dependence, 
for the moment it shakes off the yoke, it has nothing colonial 
but its origin, and stands in relation to the mother-country, on 
exactly the same footing as any other nation on the globe. 

The parent-state, with a view to secure to the produce of its 
own soil and industry the market of colonial consumption, 
generally prohibits the colonist from purchasing European 
commodities from any one else, which enables her own mer- 
chants to sell their goods in the colony for somewhat more 
than they are currently worth. This is a benefit conferred on 
the subjects of the parent-state at the expense of the colonists, 
who are likewise its subjects. Considering the mother-coun- 
try and the colony to be integral parts of one and the same 
state, the profit and loss balance each other; and this restric- 
tion is nugatory, except inasmuch as it entails the charge of an 
establishment of custom or excise-officers; and thus increases 
the national expenditure. 

While, on the one hand, the colonists are obliged to buy of 
the mother-country, they are, on the other, compelled to sell 
their colonial produce exclusively to its merchants, who thus 
obtain an extra advantage without any creation of value, at 
the expense, likewise, of the colonists, by the enjoyment of 
an exclusive privilege, and of exemption from competition. 
Here, too, the profit and loss destroy each other nationally, 
but not individually; what a merchant of Havre or Bourdeaux 
gains in this way is substantial profit; but it is taken from the 
pockets of one or more subjects of the same state, who had 
equal right to have their interests attended to. It is true, in- 
deed, that the colonists are indemnified in another way; viz, 
either by the miseries of the slave population, as we have al- 
ready explained; or by the privations of the inhabitants of the 
mother country, as I am about to show. 

So completely is the whole system built upon compulsion, 
restriction, and monopoly, that these very domestic consumers 
are compelled to buy what colonial articles of consumption 
they require exclusively from the national colonies; every 
other colony, and all the rest of the world, being denied the 
liberty of importing colonial* produce, or subjected to the pay- 
ment of a heavy fine, in the shape of an import duty. 

It would seem, that the home-consumer should at any rate 
derive an obvious benefit, in the price of colonial produce, 
from his exclusive right of purchasing of the colonist. But 
even this unjust preference is denied him; for, as soon as the 
produce arrives in Europe, the home-merchant is allowed to 
re-export and sell it where he chooses, and particularly to 
those nations, that have no colonies of their own; so that after 

* Or equinoctial; the term is applied to the ordinary products of equi< 
noctial latitudes. 



CHAP. XIX. ON PRODUCTION. 155 

all the planter is deprived of the competition of buyers, al- 
though the home-consumer is made to suffer its full effect. 

All these losses fall chiefly upon the class of home-consumers, 
a class of all others the most important in point of number, 
and deserving of attention on account of the wide diffusion of 
the evils of any vicious system affecting it, as well as of the 
functions it performs in every part of the social machine, and 
the taxes it contributes to the public purse, wherein consists 
the power of the government. They may be divided into two 
parts; whereof the one is absorbed in the superfluous charges 
of raising the colonial produce, which might be got cheaper 
elsewhere;* this is a dead loss to the consumer, without gain 
to any body. The other part, which is also paid by the con- 
sumer, goes to make the fortunes of West-Indian planters and 
merchants. The wealth thus acquired is the produce of a real 
tax upon the people, although, being centred in few hands, it 
is apt to dazzle the eyes, and be mistaken for wealth of colo- 
nial and cominercial acquisition. And it is for the protection 
of this imaginary advantage, that almost all the wars of the 
18th century have been undertaken, and that the European 
states have thought themselves obliged to keep up, at a vast 
expense, civil and judicial, as well as marine and military, es- 
tablishments, at the opposite extremities of the globe.t 

When Poivre was appointed governor of the Isle of France, 
the colony had not been planted more than 50 years; yet he 
calculated it to have then cost France no less than 60 millions 
of Jr.; to be a source of regular and large out-going; and to bring 
her no return of any kind whatsoever.^ It is true, that the 

* Poivre, a writer of great information and probity, assures us, that white 
sugar of the best quality is sold in Cochin China, at the rate of 3 piastres 
or 16 fi: of our money per quintal of the country, which is equal to 150 
livr. poids de marc, little more than 2 sous per Uvr.\ and that more tlian 80 
millions o? livr. are thence exported annually to China at that rate. Add- 
ing 300 per cent, for the charges and profits of trade, which is a most li- 
beral allowance, the sugar of Cochin Cliina might, under a free trade, be 
sold in France at from 8 to 9 sous per Uvr. 

The English already derive from Asia a considerable quantity both of 
sugar and indigo, at a cheaper rate than those of the West Indies. And, 
doubtless, if the Europeans were to plant i)idependent and industrious co- 
lonies along the northern coast of Africa, the culture of equinoctial products 
there would rapidly gain ground, and supply Europe in greater abundance 
at a still cheaper rate. 

■\ Arthur Young, in 1789, estimated the annual charge entailed on France, 
by the possession of St. Domingo, at 48 millions of francs. He has gone 
into detail to prove, that, if the sums spent on her colonies for 25 years only 
had been devoted to the improvement of any one of her own provinces, 
she would have acquired an annual addition of 120 millions o? francs, net 
revenue, consisting of actual products, without loss to any body. Vide his 
Journey in France. 

^ (Etivres de Poivre, p. 209. In this estimate he takes no account of the 
charge of the military and marine establishment (A' France herself, of which 
a part should be set down to the colony. 



156 ON PRODUCTION. book i. 

money spent on the defence of that settlement had the further 
object of upholding our other possessions in the East Indies; 
but, when we find that these latter were still more expensive 
both to the government and to the proprietors of the two com- 
panies, old and new, it is impossible to deny, that all we gain- 
ed by keeping the Mauritius at this enormous expense was, 
the opportunity of a further waste in Bengal and on the coast 
of Coromandel, 

The same observations will apply to such of our possessions 
in other parts of the world, as were of no importance, but in a 
military point of view. Should it be pretended, that these 
stations are kept up at a great sacrifice, not with the object of 
gain, but to extend and affirm the power of the mother-coun- 
try, it might yet be asked, why maintain them at such loss, 
since this power has no other object but the preservation of 
the colonies, which turn out to be themselves a losing con- 
cern?* 

That England has benefited immensely by the loss of her 
North American colonies, is a fact no one has attempted to 
deny.t Yet she spent the incredible sum of 1,800,000,000/r., 
in attempting to retain possession; a monstrous error in policy 
indeed; for she might have enjoyed the same benefits, that is 
to say, have emancipated her colonies, without expending a 
sixpence; besides saving a profusion of gallant blood, and gain- 
ing credit for generosity, in the eyes of Europe and of pos- 
terity. X 



* Vide the works of Benjamin Franklin, vol. ii, p. 60., for the opinion of 
that celebrated man, who had so much experience in these matters. I find 
it stated in the Travels of Lord Valentia, that the Cape of Good Hope, in 
1802, cost England an access of from six to seven millions of francs per an- 
num above its own revenue. 

■j- " Bristol was one of the chief entrepots of North American commerce. 
Her principal mei'chants and inhabitants joined in a most energetic repre- 
sentation to parliament, that their city would be infallibly ruined, by the ac- 
knowledgment of American Independence; adding, that their port would 
be so deserted, as not to be worth the charge of keeping up. Notwithstand- 
ing their representations, peace became amatter of necessity, and the dread- 
ed separation was consented to. Ten years had scarcely elapsed after this 
event, when the same worthy' persons petitioned the parliament, for leave 
to enlarge and deepen the port, which, instead of being deserted, as they 
had apprehended, was incapable of receiving the influx of additional ship- 
ping, that the commerce of independent America had given birth to." l)e 
Levis, Lettres Chinoises. 

^ These remarks are not altogether applicable to the British dependen- 
cies in the East; because there tlie nation is rather a conqueror than a colo- 
nist, having the domination over thirty-two millions of inhabitants, and the 
absolute disposal of the revenue levied upon them. But the clear national 
profit derived from the acquisition, is by no means so considerable, as may 
be generally supposed; for the charges of administration and protection must 
be deducted. Colquhoun, in his Treatise on the V/ealth, Poiver, and Re- 
sources of the British Empire, which gives an exaggerated picture of themj 



CHAP. XIX. ON PRODUCTION. 157 

The blunders committed by the ministers of George III., 
during the whole course of the first American war, in which, 
indeed, they were unhappily abetted, by the corruption of the 
parliament and the pride of the nation, were imitated by Na- 

Eoleon, in his attempt to reduce the revolted negroes of St. 
lomingo. Nothing but its distance and maritime position 
prevented that scheme from proving equally disastrous with 
the war of Spain. Yet, comparatively, the independence of 
that fine island might have been made equally productive of 
commercial benefit to France, as that of America had been to 
England.* It is high time to drop our absurd lamentations 

states the total revenue of the sovereign company, at 18,051,478/. sterling; 
and its expenditure at, 16,984,271/. ; leaving a surplus of 1,067,207/. (a) 

In all probability, were India in a state of national independence, the 
commerce between her and Great Britain would increase so much, as to 
produce to the latter an additional revenue, larger than the amount of that 
surplus, to say nothing of the increase of individual profits. 

* When I speak of the advantage of American emancipation to Great Bri- 
tain herself, I mean commercial, not political advantage. I know veiy well, 
that the latter is doomed to fall, and that by the instrumentality of her re- 
volted offspring. But this catastrophe will not have originated in the strug- 
gle for colonial independence: but in the insubstantial and perishable basis 
of British, and in the solidity and progressive character of American great- 
ness. (5) National power, resting upon dominion by land or sea, can never 
be permanent; because it arrays against itself the interests and passions of 
mankind: and it is utterly impossible, that any nation should henceforward 
enjoy external sway, so extensive, or so longlived as that of the Romans; 
knowledge is too far advanced; the means of resistance too well understood, 
and mutual intercourse too general and too free. 



(a) The position of the British power in India, has been every way im- 
proved by the late operations; for an account of which, and of the present 
financialresourcesof the company, vide Narrative of the late Operations, by 
H. T. Prinsep. It is by no means clear, that the independence of India 
would, at present, produce the advantages anticipated by our author; for 
those advantages would depend upon its better administration, to which the 
natives are at present hardly competent. T. 

(h) Our author seems here and elsewhere, to dwell with some satisfaction 
on the prospect of the pohtical degradation of Great Britain. But he for- 
gets, that the same productive povver, which lias raised her to pre-eminence, 
may still uphold her, if properly directed. The sources of her greatness 
are natural means, operated upon by her domestic industry: her external 
sway is rather the index of the existence and amount, than the essence of 
her superiority. Neither is the basis of American greatness quite so sub- 
stantial as he seems to imagine. In shoi't, every nation has in itself the 
seeds of wealtli and improvement, as well as of decay and impoverishment. 
Britain has industry, intelligence, and capital; her bane is heavy debt and 
taxation, aggravated by a poor-law system. America has industry and ter- 
ritorial extent; but she has negro-slavery, a more formidable source of mis- 
chief than any one of Britain's scourges. The southern states, which are 
now cultivated by negroes, will one day probably be the scene of negro 
dominion, and a thorn in the side of the giant republic. The sources of na- 
tional prosperity or decay, may be checked or stimulated, re-opened or de- 
stroyed by human agency. Our author reckons with too much confidence 



158 ON PRODUCTION. book 2, 

for the loss of our colonies, considered as a source of national 
prosperity. For, in the first place, France now enjoys a greater 
degree of prosperity, than while she retained her colonies; 
witness the increase of her population. Before the revolution, 
her revenues could maintain but twenty-five millions of peo- 
ple: they now support thirty millions, (1819.) In the second 
place, the first principles of political economy will teach us, 
that the loss of colonies by no means implies a loss of the trade 
with them. Wherewith did France before buy the colonial 
products? with her own domestic products to be sure. Has 
she not since continued to buy them in the same way, though 
sometimes of a neutral, or even an enemy? 

I admit, that the ignorance and vices of her rulers for the 
time being have made her pay for those products much dearer, 
than she need have done; but now that she buys them at the 
natural price, (exclusive of course, of the import duties,) and 
pays for them as before with her domestic products, in what 
way is she a loser? Political convulsions have given a new 
direction to commerce; the import of sugar and cofiee is no 
longer confined to Nantes and Bordeaux; and those cities 
have suffered in consequence. But, as France now consumes 
at least as much of those articles as ever she did, all, that has 
not come by the way of Nantes or Bordeaux, must needs have 
found its way in some other channel. France can not have 
bought in any other way, than, as'of old, with the products of 
her own land, capital, and industry, for, excepting robbery 
and piracy, one nation has no other means of buying of another. 
Indeed, France might have benefited largely by the trade, 
which has supplanted her own colonial commerce, had not 
old prejudices and erroneous notions constantly opposed the 
natural current of human affairs. 

Perhaps it may be argued, that the colonies furnish commo- 
dities, which are no where else to be had. The nation, there- 
fore, that should have no share of territories so highly favoured 
by nature, would lie at the mercy of the nation, that should 
first get possession; for the monopoly of purchasing the colo- 
nial produce would enable her to exact her own price from 
her less fortunate neighbour. Now it is proved beyond all 
doubt, that what we erroneously call colonial produce, grows 
every where within the tropics, where the soil is adapted to 
its cultivation. The spices of the Moluccas are found to 
answer at Cayenne, and probably by this time in many other 
places; and no monopoly was ever more complete, than the 
trade of the Dutch in that commodity. They had sole pos- 
session of the only spice islands, and allowed nobody else to 



upon the perpetuation of ministerial folly and corruption; and, to say the 
truth, both the experience of the past, and the observation of the present, 
fully warrant him in so doing. But the progress of intelligence in the na- 
tion, may enforce the tardy acquiescence of authority. T. 



CHAP. XIX. ON PRODUCTION. 159 

approach them. Has Europe been in any want of spices, or 
has she bought them for their weight in gold? Have we any 
reason to regret the not having devoted two hundred years of 
war, fought a score of naval battles, and sacrificed some hun- 
dreds of millions, and the lives of half a million of our fellow 
creatures, for the paltry object of getting our pepper and 
cloves cheaper by some two or three sous a pound? And 
this example, it is worth while to observe, is the most favoura- 
ble one for the colonial system, that could possibly be selected. 
One can hardly imagine the possibility of monopolizing sugar, 
a staple product of most parts of Asia, Africa, and America, 
so completely as the Dutch did the spice trade; yet has this 
very trade been snatched from the avaricious grasp of the mo- 
nopolist nation, almost without firing a shot. 

The ancients, by their system of colonization, made them- 
selves friends all over the known world; the moderns have 
sought to make subjects, and therefore have made enemies. 
Governors, deputed by the mother-country, feel not the slight- 
est interest in the diffusion of happiness and real wealth 
amongst a people, with whom they do not propose to spend 
their lives, to sink into privacy and retirement, or to conciliate 
popularity. They know their consideration in the mother- 
country will depend upon the fortune they return with, not 
upon their behaviour in office. Add to this the large discre- 
tionary power, that must unavoidably be vested in the depu- 
ted rulers of distant possessions, and there will be every in- 
gredient towards the composition of a truly detestable govern- 
ment. 

It is to be feared, that men in power, like the rest of man- 
kind, are too little disposed to moderation, too slow in their 
intellectual progress, embarrassed as it is at every step by the 
unceasing manoeuvres of innumerable retainers, civil, military, 
financial, and commercial; all impelled, by interested motives, 
to present things in false colours, and involve the simplest 
questions in obscurity, to allow any reasonable hope of accele- 
rating the downfall of a system, which for the last three or 
four hundred years must have wonderfully abridged the ines- 
timable benefits, that mankind at large, in all the five great di- 
visions of the globe,* have, or ought to have derived from the 
rapid progress of discovery, and the prodigious impulse given 
to human industry since the commencement of the sixteenth 
century. The silent advances of intelligence, and the irre- 
sistible tide of human affairs will alone effect its subversion. 

* The vast continent of New Holland, with its suiToiinding' islands, is now 
g-enevally considered by geographers as a distinct portion of the globe, un- 
der the denomination of Australia or Austrasia, which has been given to it 
on account of its position exclusively v.ithin tlie southern hemisphere. 



ON PRODUCTION. book i. 



CHAPTER XX. 



OF TEMPORARY AND PERMANENT EMIGRATION CONSIDERED 
IN REFERENCE TO NATIONAL WEALTH. 

When a traveller arrives in France, and there spends 
10,000 //"., it must not be supposed that the whole sum is clear 
profit to France. The traveller expends it in exchange for 
the values he consumes: the effect is just the same, as if he had 
remained abroad, and sent to France for what he wanted, in- 
stead of coming and consuming it here; and is precisely simi- 
lar to that of international commerce, in which the profit made 
is not the whole or principal value received, but a larger or 
smaller per centage upon that principal, according to the cir- 
cumstances. 

The matter has not hitherto been viewed in this light. In 
the firm conviction of this maxim, that metal-money was the 
only item of real wealth, people imagined, that, if a foreigner 
came amongst them with 10,000 fr. in his pocket, it was so 
much clear profit to the nation: as if the tailor that clothes 
him, the jeweller that furnishes him with trinkets, the victu- 
aller that feeds him, gave him no values in exchange for his 
specie, but made a profit equal to the total of their respective 
charges. All that the nation gains is, the profit upon its deal- 
ing with him, and upon what he purchases: and this is by no 
means contemptible, for every extension of commerce is a pro- 
portionate advantage;* but it is well to know its real amount, 
that we may not be betrayed into the folly of purchasing it too 
dearly. An eminent writer upon commercial topics, tells us, 
that theatrical exhibitions can not be too grand, too splendid, 
or too numerous; for that they are a kind of traffic, wherein 
France receives all and pays nothing; a proposition which is 
the very reverse of truth; for France pays, that is to say, loses, 
the whole expense of the exhibition, which is productive of 
nothing but barren amusement, and leaves no value whatever 
to replace what has been consumed on it. Fetes of thiSjde- 
scription may be very pleasant things as affording amusen|43it, 

• A strange country lias some advantages over the traveller, and its 
dealings with him may be considered as lucrative; for his ignorance of the 
language and of prices, and often a spice of vanity, make him pay for most 
of the objects of his consumption above the current rate. Besides, the 
public sights and exhibitions, which he there pays for seeing, are expenses 
already incurred by the nation, which he nowise aggravates by his pre- 
sence. But these advantages, though real and positive, are very limited in 
amount, and must not be over-rated. 



CHAP. XX. ON PRODUCTION. 161 

but must make a ridiculous figure as a speculation of profit and 
loss. What would people think of a tradesman, that was to 
give a ball in his shop, hire performers, and hand refreshments 
about, with a view to benefit in his business? Besides it may 
reasonably be doubted, whether a fete or exhibition of the 
most splendid kind, does in reality occasion any considerable 
influx of foreigners. Such an influx would be much more 
powerfully attracted by commerce, or by rich fragments of 
antiquity, or by master-pieces of art nowhere else to be seen, 
or by superiority of climate, or by the properties of medicinal 
waters, or, most of all, by the desire of visiting the scenes of 
memorable events, and of learning a language of extensive ac- 
ceptation. I am strongly inclined to believe, that the enjoy- 
ment of a few empty pleasures of vanity has never attracted 
much company from any great distance. People may go a 
few leagues to a ball or entertainment, but will seldom make a 
journey for the purpose. It is extremely improbable, that the 
vast number of Germans, English, and Italians, who visit the 
capital of France in time of peace, are actuated solely by the 
desire of seeing the French opera at Paris. That city has 
fortunately many worthier objects of general curiosity. In 
Spain, the bull-fights are considered very curious and attrac- 
tive; yet I can not think many Frenchmen have gone all the 
way to Madrid to witness that diversion. Foreigners, that 
have already come into the country on other accounts, are in- 
deed frequent spectators of such exhibitions; but it was not 
solely with this object that they first set out upon their 
journey, (a) 



Ca) This has become a matter of some interest to England, whose un- 
productive capitaUsts and proprietors have absohitely overwhelmed the 
society of France and a great part of Itaty, where they consume an im- 
mense revenue, derived from Britain by the export of her manufactures 
without any return. Thus their native country is, pro tanto, a producer 
without being a consumer; — the scene of exertion but not of enjoyment. — 
This circumstance, although nowise prejudicial to her productive powers, 
is extremely so to the comfort and enjo_yment and content of her popula- 
tion; for there are few enjoyments so personal and selfish, as not to be dif- 
fused in some degree or other at the moment and place of consumption. — 
Besides, the presence of the propi'ietor is always a benefit, especially in 
Great Britain, where so many public duties are gratuitously performed. — 
Ireland suffers in a worse degree; her gentry are attracted by England as 
well as the continent; and the consequences have long been matter of re- 
gret and complaint. Though it m.ight be impolitic to check the efflux by 
authoritative measures, it should at least not be directly encouraged and 
stimulated, as it really is, by the financial system, which the English minis- 
try so obstinately persevere in. Almost the whole of the taxation is thrown 
immediately upon consumption; whilst the permanent sources of production 
and the clear rent they yield to the idle proprietor are left untouched. — 
The proprietor has, therefore, an obvious interest, in effecting his con- 
sumption where it is least burthened '.vith taxation; that is to say, any 
where but in England. His property is protected gratuitously, and the 
charge of its protection defrayed by the ])roductive classes, who thus are 

28 



162 ON PRODUCTION. book r. 

The vaunted fetes of Louis XIV, had a still more mis- 
chievous tendency. The sums spent upon them were not sup- 
plied by foreigners, but by French provincial visiters, who 
often spent in a week, as much as would have maintained their 
families at home for a year. So that France was two ways a 
loser; first, of the sums expended by the monarch, which had 
been levied on the subjects at large; secondly, of all that was 
spent by individuals. The sum total of the consumption was 
thrown away, that a few tradesmen of the metropolis might 
make their profits upon it; which they would equally have 
done, had their industry and capital taken a more beneficial 
direction. 

A stranger, that comes into a country to settle there, and 
brings his fortune along with him, is a substantial acquisition 
to the nation. There is in this case an accession of two sources 
of wealth, industry and capital: an accession of full as much 
value, as the acquirement of a proportionate extension of ter- 
ritory; to say nothing of what is gained in a moral estimate, 
if the emigrant bring with him private virtue and attachment 
to the place of his adoption. "When Frederick William 
came into the regency," says the royal historian of the house 
of Brandenburgh, " there was in the country no manufacture 
of hats, of stockings, of serge, or woollen stuff of any kind. 
All these commodities were derived from French industry. 
The French emigrants introduced amongst us the making of 
broadcloths, baizes and lighter woollens, of caps, of stockings 
wove in the frame, of hats of beaver and felt, as well as dyeing 
in all its branches. Some refugees of that nation established 
themselves in trade, and retailed the products of their indus- 
trious countrymen. Berlin soon could boast of its goldsmiths, 
jewellers, watch-makers, and carvers; those of the emigrants, 
that settled in the low country, introduced the cultivation of 
tobacco, and of garden fruits and vegetables, and by their ex- 
ertions converted the sandy tract in the environs into capital 
kitchen-garden grounds." 

This emigration of industry, capital, and local attachment, 
is no less a dead and total loss to the country thus abandoned, 
than it is a clear gain to the country affording an asylum. It 
was justly observed by Christina, queen of Sweden, upon the 
revocation of the edict of Nantes, that Louis XIV. had used 
his right hand to cut off his left. 

Nor can the calamity be prevented by any measures of legal 



compelled to pay for the secimt_v of other people's property as well as 
their own, and are themselves unable to imitate their unproductive country- 
men, by running away from domestic taxation. A more unjust and dis- 
couraging- system could not have been devised. Its evils are daily increas- 
ing, and threaten the most serious diminution of the national resources- — 
But the ministers neither see the mischief themselves, nor will listen to the 
warnings of others. Many of them, indeed, have an interest in perpetuating 
an exemption, by wliich they benefit personally. T. 



CHAP. XX. ON PRODUCTION. 16S 

coercion. A fellow-citizen can not be forcibly retained, unless 
he be absolutely incarcerated; still less can he be prevented 
from exporting his moveable property, if he be so inclined. 
For, putting out of the question the channel of contraband, 
which can never be closed altogether, he may convert his 
effects into goods, whose export is tolerated or even encourag- 
ed, and consign, or cause them to be consigned, to some cor- 
respondent abroad. This export is a real outgoing of value: 
but how is it possible for government to ascertain, that it is 
intended to be followed by no return?* 

The best mode of retaining and attracting mankind is, to 
treat them with justice and benevolence; to protect every one 
in the enjoyment of the rights he regards with the highest 
reverence; to allow the free disposition of person and proper- 
ty, the liberty of continuing or changing his residence, of 
speaking, reading, and writing in perfect security, {a) 

Having thus investigated the means of production, and point- 
ed out the circumstances, that render their agency more or 
less prolific, it would be endless, as well as foreign to my sub- 
ject, to attempt a general review of all the various products, 
that compose the wealth of mankind: such a task would furnish 
materials for many distinct treatises. But there is one amongst 
these products, the uses and nature of which are very imper- 
fectly known, although the knowledge of them would throw 
much light upon the matter now under discussion: for which 
reason I have determined, before the conclusion of this part 
of my work, to give a separate consideration to the product, 



• In 1790, when the new authorities of France indemnified the holders 
of suppressed offices in paper-money^ these discarded functionaries for the 
most part converted their assigndts into specie, or other commodities of 
equal value, which they took or sent out of the country. The consequent 
national loss to France was nearly as great, as if they had received their 
indemnities in cash; for its paper representative had not then suffered any 
material depreciation. Even when the individual remains himself in the 
countiy, he can not be prevented from transferring liis fortune tiience, if iie 
be determined upon so doing. 



(a) England enjoys all these in a higher degree than any country in 
Europe; yet they are all more than counterbalanced by the severity and 
iniquity of taxation, as appears by the large efflux of all the classes not re- 
tained by local ties. Taxation under a free government may prove equally 
harassing with the oppression of a despotic one. But it ma}^ be doubted, 
whether Englishmen would in such numbers exchange the tyranny of taxa- 
tion for the inferior liberty of foreign society, were they not actually more 
fiwoured abroad, and allowed a greater license, than even the native popu- 
lation. At all events, the English government has the power of turning 
the tide, and bringing back the majority of the fugitives, by changing the 
form of its taxation, and transferring its pressure from floating to fixed pro-- 
perty, which can not emigrate: in short by relieving consumption, and tax- 
ing the clear revenue of the appropriated sources of produetion. Vidt 
$uprd, note {u) p. 230. T. 



164 ON PRODUCTION. book i. 

money, which acts so prominent a part in the business of pro- 
duction, in the character of the principal agent of exchange 
and transfer. 



CHAPTER XXI. 

OF THE NATURE AND USES OF MONEY- 

SECTION T. 
General Reinarks. 

In a society ever so little advanced in civilization, no single 
individual produces all that is necessary to satisfy his own 
wants; and it is rarely that an individual, by his single exer- 
tion, creates even any single product; but even if he does, his 
wants are not limited to that single article; they are numerous 
and various, and he must, therefore, procure all other objects 
of his personal consumption, by exchanging the overplus of 
the single product he himself creates beyond his own wants, 
for such other products as he stands in need of. And, by the 
way, it is observable, that, since individual producers, in 
every line, keep for their own use but a very small part of 
their own products; the gardener, of the vegetables he raises, 
the baker, of the bread he bakes, the shoemaker of the shoes 
he makes, and so of all others; the great bulk, nay almost the 
whole of the products of every community, arrive at consump- 
tion by the medium of exchange. 

This is the reason, why it has been erroneously concluded, 
that exchange and transfer are the basis and origin of the pro- 
duction of wealth, and of commerce in particular: whereas 
they are only secondary and accessary circumstances; inas- 
much as, were each family to raise the whole of the objects of 
its own consumption, as we see practised in some instances in 
the back settlements of the United States, society might con- 
tinue to exist, without a single act of exchange or transfer. I 
make this remark, merely with a view to correctness of first 
principles, without any design to detract from the importance 
of exchange and transfer to the progressive advance of pro- 
duction; indeed, I set out with the position, that they are in- 
dispensable in an advanced stage of civilization. 

Admitting, then, the necessity of interchange, let us pause a 
moment, and consider, what infinite confusion and difiiculty 



CHAP. XXI. ON PRODUCTION. 163 

must arise to all the difi'erent component members of society, 
who are for the most part producers of but a single article, or 
two or three at the utmost, but of whom even the poorest is a 
consumer of a vast number of different products; 1 say, what 
difficulty must ensue, were every one obliged to exchange his 
own products specifically for those he may want; and were 
the whole of this process carried on by a barter in kind. The 
hungry cutler must offer the baker his knives for bread; per- 
haps, the baker has knives enough, but wants a coat; he is 
willing to purchase one of the tailor with his bread, but the 
tailor wants not bread, but butcher's meat; and so on to infinity. 

By way of getting over this difficulty, the cutler, finding he 
can not persuade the baker to take an article he does not want, 
will use his best endeavours to have a commodity to ofi'er, 
which the baker will be able readily to exchange again for 
whatever he may happen to need. If there exist in the socie- 
ty any specific commodity that is in req^uest, not merely on 
account of his inherent utility, but likev/ise on account of the 
readiness with which it is received in exchange for the neces- 
sary items of consumption, and the facility of proportionate 
subdivision, that commodity is precisely what the cutler will 
try to barter his knives for; because he has learnt from experi- 
ence, that its possession will procure him without any diffi- 
culty by a second act of exchange, bread or any other article 
he may wish for. 

Now money is precisely that commodity. 

The two qualities, that give a general preference of value, 
in the shape of the current money of the country to the same 
amount of value in any other shape, are: — 

1. The aptitude, in the character of an intermedial object of 
exchange, to help all who have any exchange or any purchase 
to make, that is to say, every member of the community, to- 
wards the specific object of desire. The general confidence, 
that money is a commodity acceptable to every body, inspires 
the assurance of being able, by one act of exchange only, to 
procure the immediate object of desire, whatever it may be; 
whereas, the possessor of any other commodity can never be 
sure, that it will be acceptable to the possessor of that particu- 
lar object of desire. 

2. The capability of subdivision and precise apportionment 
to the amount of the intended purchase; which capability is a 
recommendation to all, who have purchases to make; in other 
words, to every member of the community. Every one is, 
therefore, anxious to barter for money the product whereof 
he holds a superfluity, and which is commonly that he himself 
produces; because, in addition to the other quality above 
stated, he feels sure of being able to buy with its value in that 
shape as small or as large a portion of corresponding value, as 
he may require; and because he may buy, whenever and wlier- 
ever he pleases, such objects as he may desire to have in lieu 
of the product he has sold originally. 



166 ON PRODUCTION. book i. 

In a very advanced stage of civilization, when individual 
wants have become various and numerous, and productive 
operations very much subdivided, exchanges become a matter 
of more urgent necessity, as well as much more frequent and 
more complicated; and personal consumption and barter in 
kind becomes less practicable. For instance, if a man makes 
not the whole knife, but the handle of it only, as in fact is the 
case in towns where cutlery is conducted on a large scale, he 
does not produce any thing that he can turn to account; for 
what could he do with the handle without the blade? He can 
not himself consume the smallest part of his own product, but 
must unavoidably exchange the whole of it for the necessa- 
ries or conveniences of life, for bread, meat, linen, &c. But 
neither baker, butcher, nor weaver, can ever stand in need 
of an article, that is fit for nobody but the finishing cutler, who 
can not himself give either bread or meat in exchange; because 
he produces neither; and who must, therefore, give some one 
commodity, that, b)^ the custom of the country, may be expect- 
ed to pass currently in exchange for most others. 

Thus, money is the more requisite, the more civilized a na- 
tion is, and the further it has carried the division of ]abour.(a) 
Yet history contains precedents of considerable states, in which 
the use of any specific article, as money, was utterly unknown; 
as we are told it was among the Mexicans at the time of the 
discovery. We are infonned, that, just about the period of 
their conquest by the Spanish adventurers, they were begin- 
ning to employ the cocoa-nut as money, in the smaller trans- 
actions of commerce.*(l) 

I have referred to custom, and not to the authority of go- 
vernment, the choice of the particular article that is to act as 
money in preference to every other: for though a government 
may coin what it pleases to call crowns, it does not oblige the 
subject to give his goods in exchange for these crowns, at least 
not where property is at all respected. Nor is it the mere 
impression, that makes people consent to take this coin in ex- 
change for other products. Money passes current like any 

• Raynal. Hist. pJdl. et. pol. lib. vi. 



(a) The utility of money is intense, in the compound ratio of the division 
of labour and the variety of individual consumption. A sugar colony in 
the West Indies, though highly productive in proportion to its population, 
requires little money to facilitate the transfer of the produce; because the 
bulk of the population, the negroes, have very little variety of consump- 
tion: the}- are fed, clothed, &c. in the wholesale, and in the plainest and 
most unifoiTO manner. Yet, possibly, the division both of agricultural and 
manufacturing labour on each plantation may ba carried to considerable 
length. T. 



(1) [Not the cocoa-nut, but grains ofmeao. This, however, is the eiTor 
of the translator.] Aiisbii.'an Editou. 



CHAP. XXI. ON PRODUCTION. 167 

other commodity; and people may at liberty barter one arti- 
cle for another in kind, or for gold in bars, or silver bullion. 
The sole reason why a man elects to receive the coin in pre- 
ference to every other article, is, because he has learnt from 
experience, that it is preferred by those, whose products he 
has occasion to purchase. Crown pieces derive their circula- 
tion as money from no other authority than this spontaneous 
preference: and if there were the least ground for supposing, 
that any other commodity, as wheat, for instance, would pass 
more currently in exchange for what they calculate upon 
wanting themselves, people would not give their goods for 
crown pieces, but would demand wheat, which would then be 
invested with all the properties of money. And this has oc- 
curred occasionally in practice, where the authorized or go- 
vernment money has consisted of paper destitute of credit or 
public confidence. 

Custom, therefore, and not the mandate of authority, desig- 
nates the specific product that shall pass exclusively as money, 
whether crown pieces or any other commodity whatever.* 

The more frequent recurrence of the exchange of every in- 
dividual product for the commodity, money, than for any 
other product, has attached particular names to this transac- 
tion; thus, to receive money in exchange is called, selling, and 
to give it, buying. 

In this way originated the use of money. These positions 
are by no means purel)' speculative; for on them must all ar- 
guments, and laws, and regulations, on the subject of money, 
be grounded. A system built upon any other foundation can 
possess neither beauty nor solidity, and must fail to fulfil the 
object of its construction. 

With the view of throwing the utmost possible light upon 
the essential properties of money, and the principal contin- 
gencies it is subject to, 1 shall treat of these particulars in se- 
parate sections, and endeavour to enable such, as may give me 
their attention, to follow with ease the chain of connection, 
notwithstanding that classification; and themselves to arrange 
in one comprehensive view the whole play of the mechanism, 
and the causes of that derangement, which human folly or mis- 
fortune may occasionally effect. 

• When the intercourse between the Ein-opeans and the negroes of the 
river Gambia first commenced, tiie commodity most in request with them 
was iron, for the purposes of war and of tillage. Iron, therefore, became 
tlie standard of comparison of value. In a little time, it became a luere 
nominal standard in their mercantile dealings; and a bar of tobacco, consist- 
ing of 20 or 30 leaves of that herb, was given for a bar of rum, consisting 
of four or five pints, according to the abundance or scarcity of the article. 
In such a state of society, each- product successively performs the func- 
tions of money, in reference to all other products; which lea^■es the commu- 
nity subject to all the inconveniences of barter in kind, the chief of which 
is, the inability to offer any one article in general request and accepta- 
tion, and capable of ready apportionment in amount to other commodities at 
large. Vide Travels of Mungo Park, vol. i, c. 2. 



168 ON PRODUCTION. book i. 



SECTION n. 



Of the Material of Money. 

If, as it would appear by the reasoning in the preceding 
section, money be employed as a mere intermedial object of 
exchange between an object in possession and the object of 
desire, the choice of its material is of no great importance. 
Money is not desired as an object of food, of household use, 
or of personal covering, but for the purpose of re-sale, as it 
were, and re-exchange for some object of utility, after having 
been originally received in exchange for one such already. 
Money is, therefore, not an object of consumption; it passes 
through the hands without sensible diminution or injury; and 
may perform its office equally well, whether its material be 
gold or silver, leather or paper. 

Yet, to enable it to execute its functions, it must of necessity 
be possessed of inherent and positive value; for no man will 
be content to resign an object possessed of value, in exchange 
for another of less value, or of none at all. 

There are some other less essential requisites, which add to 
its efficiency. A material, wherein these are not combined, is 
unfit for the purpose, and can not hope to engross its functions 
.either generally or permanently. 

We are told by Homer, that the armour of Diomede had 
cost nine oxen. A warrior, that wished to arm himself at 
half the price, must have been puzzled to pay four oxen and a 
half. Wherefore, the article employed as money must be ca- 
pable of being readily and without injury apportioned to the 
different objects of desire, and subdivided in such manner, as 
to admit of exchanges of the exact amount required. 

Again, we read, that in Abyssinia, they make use of salt for 
money. If the same custom prevailed in France, a man must 
take a mountain of salt to market to pay for his weekly pro- 
visions. Wherefore, the commodity employed as money must 
not be so abundant, as to make it necessary to transfer a large 
quantity, on each recurring act of exchange. 

At Newfoundland, it is said, that dried cod performs the 
office of money; and Smith makes mention of a village in Scot- 
land, where nails are made use of for that purpose.* Besides 
many other inconveniences, that substances of this nature are 
subject to, there is this grand objection, that the quantity may 
be enlarged almost at pleasure, and in a very short space of 
time, and thereby a vast fluctuation effected in their relative 

* Wealth of Nations, book i. c. 4. 



CHAP. xxr. ON PRODUCTION. 16.9 

value. But who would readily accept in exchange an article, 
that might perhaps, in a few moments lose the half or three- 
fourths of its value? Wherefore, the commodity employed as 
money must be of such difficult acquisition, as to ensure those 
who take it from the danger of sudden depreciation. 

In the Maldive Islands, and in some parts of India and Afri- 
ca, shells, called cowries, are employed as money, although 
they have no intrinsic value, except that they serve for orna- 
ment to some rude tribes. This kind of money would never 
do for nations that carry on trade with many parts of the globe; 
a medium of exchange of such very limited circulation would 
offer insuperable objections. It is natural for people to receive 
most willingly in exchange that article, which is the most uni- 
versally received in like manner by other people in their turn. 

We need not, then, be surprised, that almost all the commer- 
cial nations of the world should have selected metal to perform 
the office of money; when once the more industrious and com- 
mercial communities had declared their choice, all the rest had 
an evident inducement to follow their example. 

At times, when the metals now most abundantly produced 
were yet rare, people were content to make use of them for 
the purpose. The legal currency of Lacedsemon was of iron; 
that of the early Romans of copper. In proportion as those 
metals were extracted from the earth in greater quantity, they 
became liable to the objection above stated in respect to all 
products of too little comparative* value; and it is long since 
the precious metals, that is to say, gold and silver, have been 
almost universally adopted. To this use they are particularly 
applicable: 

1. As being divisible into extremely minute portions, and 
capable of re-union, without any sensible loss of weight or 
value; so that the quantity may be easily apportioned to the 
value of the article of purchase. 

2. The precious metals have a sameness of quality all over 
the world. One grain of pure gold is exactly similar to ano- 
ther, whether it came from the mines of Europe or of America, 
or from the sands of Africa. Time, weather, and damp, have 
no power to alter the quality; the relative weight of any speci- 
fic portion, therefore, determines at once its relative quantity 
and value to every other portion: two grains of gold are worth 
exactly twice as much as one. 

3. Gold and silver, especially with the mixture of alloy, 
that they admit of, are hard enough to resist very considera- 
ble friction, and are therefore fitted for rapid circulation, 



* The money of Lacedxinon is a proof of tlie position, that public autho- 
rity is competent of itself to give currency to its money. The laws of Ly- 
curgtis du'ected the money to be made of iron, purposely to prevent its be- 
ing easily hoarded, or transferred in large quantities; but they were inopera- 
tive, because they went to defeat these, the principal purposes of money. 
Yet no legislator was ever more rigidly obeyed than Lycurgus. 
2.9 



170 ON PRODUCTION. book i. 

though, indeed, in this respect, they are inferior to many kinds 
of precious stones. 

4. Their rarity and consequent dearness is not so great that 
the quantity of gold or of silver, equivalent to the generality 
of goods, is too minute for ordinary perception; nor, on the 
other hand, are they so abundant and cheap, as to make a large 
value amount to a great weight. It is possible, that, in progress 
of time, they may become liable to objection on this score; es- 
pecially if new and rich veins of ore should be discovered: and 
then mankind must have recourse to platina,orsome other yet 
unknown metal, for the purposes of currency. 

Lastly, gold and silver are capable of receiving a stamp or 
impression, certifying the weight of the piece, and the degree 
of its purity. 

Although the precious metals used for money have generally 
some mixture of baser metal, generally of copper, by way of 
alloy, the value of the baser metal, thus incorporated, is reck- 
oned for nothing. Not that the alloy is itself destitute of 
value; but because the operation of disuniting it from the 
purer metal, would cost more than it would be worth, after it 
was extracted. For this reason, a piece of coined gold or sil- 
ver, mixed with alloy, is estimated by the quantity of precious 
metal only contained in it* 



SECTION III. 

Of the Accession of Value a Commodity receives by being 
vested with the character of Tnoney. 

Fkom the foregoing sections it will appear, that money is in- 
debted for its currency, not to the authority of the government, 
but to its being a commodity bearing a peculiar and intrinsic 
value. But its preference, as an object of exchange, to all 
other commodities of equivalent value, is owing to its charac- 
teristic properties as money; and to the peculiar advantage it 
derives from its employinent in that character; namely, the 
advantage of being in universal use and request. The whole 
population, from the lowest degree of poverty to the highest 

* The present silver coin of France contains one part copper, to nine 
parts fine silver: the relative value of copper to silver being as 1 to 60, or 
thereabouts. So that the copper contained in the whole silver coinage, 
amounts to about 1-600 of the total value of the silver coin, or 1 cent, in & fr. 
Supposing it were attempted to disengage the copper, it would not pay the 
expenses of the process of separation; to say nothing of the value of the 
impression, that must be destroyed. Wherefore, it is reckoned for nothing 
in the valuation of the coin. A piece of 5/r. presents the idea of the 22 1-2 
grammes of fine silver contained in it, though actually weighing 25 gr., in- 
clusive of the alloy. 



CHAP. XXI. ON PRODUCTION. 171 

of wealth, must effect exchanges, must buy tlie objects of want, 
must be consumers of money; or, in other words, must obtain 
possession of the commodity, that acts as the medium of ex- 
change, the commodity generally admitted to be best suited, 
and most frequently employed for that purpose. A man that 
has any other commodity, jewels for instance, to ofier in ex- 
change for the necessaries or luxuries he may have occasion 
for, can not get those necessaries or luxuries by the process of 
exchange, until he has found a consumer for his jewels; nor 
can he even then be sure, that such a consumer will be able to 
give him, in return, the very identical article he may want: 
whereas, a man, with money in his pocket, is quite certain, 
that it will be acceptable to the person, of whom he would 
buy any thing; because that person will, in turn, be himself 
obliged to become a purchaser in like manner. * With the com- 
modity, money, he can obtain all he wants by a single act of 
exchange only, called a purchase; whereas, with all others tvvo 
acts at least are necessary; a sale and a purchase. This is the 
sum total of its advantages in the character of money: but it 
must be obvious to every body, that the preference, thus 
shown it as money, is a consequence of its actual use as such. 

I must here observe, that the adoption of any specific com- 
modity to serve as money considerably augments its intrinsic 
value, or value as an article of commerce. A new use being 
discovered for the commodity, it unavoidably becomes more 
in request; the employment of a great part, the half or perhaps 
three-fourths of the whole stock of it on hand, in this new way 
can not fail to render the whole more scarce and dear, (a) 

Were the actually existing stock of silver and gold applied 
to other use, than the fabrication of plate or ornaments, the 
quantity would be abundant and much cheaper than it is at 
present; that is to say, whenever they were exchanged for 
other commodities, more of them would be given or received 
in proportion to the value obtained in exchange. But a large 
portion of these metals being destined to act as money, and ex- 
clusively occupied in that way, there is less remaining to be 
manufactured into jewellery and plate, and the scarcity of 
course adds to the value. On the other hand, if they were 
never used in plate or jewellery, there would be more of them 
applicable to the purpose of money, and money would grow 
cheaper, that is to say, more of it would be necessary to pur- 
chase an equal quantity of goods. The employment of the 

* The other property of money, the capability of subdivision, and appor- 
tionment of the value parted with, must not be lost sight of: by it the jew- 
eller is enabled to exchange a minute portion of his precious commodity 
for the smallest item of his household expenditure. 



(a) This point has been well observed upon by Tm^got liejl. sur hi Form, 
et Distrih. des Rich. 



172 ON PRODUCTION. book i. 

precious metals in manufacture makes them scarcer and dearer 
as money; in like manner as their employment as money 
makes them scarcer and dearer in manufacture. * 

Hence it naturally follows, that these metals being, by rea- 
son of their employment as money, raised to such a price, as 
f)recludes their so general use in the form of plate and jewel- 
ery, it is in consequence found less convenient to use them in 
that form. The luxury costs more than it is worth. Thus, 
massive gold plate has gone completely out of fashion, particu- 
larly in those countries, where the activity of commerce, and 
the rapid progress of wealth, make gold in great demand for 
the purposes of money. The richest individuals content them- 
selves with gilt plate, that is to say, plate covered with a very 
thin coat of gold; solid gold is used only in smaller articles of 
manufacture, and those in which the value of the workman- 
ship exceeds that of the metal. In England, plate is made 
very light, and people of affluence often content themselves 
with silver-plated goods. The ostentation of displaying a 
large service of that metal costs the interest of a considerable 
capital. 

The increase of the value of metals is, generally speaking, 
attended with some disadvantages; inasmuch as it places many 
articles of comfort and convenience, silver dishes, spoons, &c., 
beyond the reach of most private families; but there is no dis- 
advantage in such increased value of the metal in its character 
of money; on the contrary, there is a greater convenience in 
the transfer of a less bulky commodity, on every change of 
residence, and every act of exchange. 

The selection of any commodity, to act as money in but 
one part of the world, increases its value every where else. — 
There is no doubt, that, if silver should cease to be current as 
money in Asia, the value of that metal in Europe would be 
affected, and more of it would be given in exchange for all 
other commodities: for one use of silver in Europe is, the pos- 
sibility of exporting it to Asia. 

The employment of the precious metals as money by no 
means renders their value stationary; they remain subject to 

* Ricardo and some other writers maintain, that the charges of obtaining 
the metal wholly determine its price or relative value in exchange for all 
other commodities. According to their notions, therefore, the want or de- 
mand nowise influences that price; a position indirect contradiction to daily 
and indisputable experience, which leads us invariably to the conclusion, 
that value is increased by increase of demand. Supposing that, by the dis- 
coveiy of new mines, silver were to become as common as copper, it would 
be subject to all the disqualifications of copper for the purposes of money, 
and gold would be more generally employed. The consequent increase of 
the demand for gold would increase tlie intensity of its value; and mines 
would be worked, that are now abandoned, because they do not defray the 
expense. It is true, that the ore would then be obtained at a heavier rate; 
but will any one deny, that the increased value of the metal would be owing 
to the increased demand for it ? It is the increased intensity of that demand, 
that determines the miner to incur the increased charge of production. 



CHAP. XXI. ON PRODUCTION. 173 

local as well as temporary fluctuations of value, like every 
other object of commerce. In China, half an ounce of silver 
will purchase as many objects of use or pleasure as an ounce 
in France; and an ounce of silver in France will generally ^o 
much farther in the purchase of commodities, than it will in 
America. Silver is more valuable in China than in France, 
and in France than in America. 

Thus money, or specie, as some people call it, is a commo- 
dity, whose value is determined by the same general rules, 
as that of all other commodities; that is to say, rises and falls 
in proportion to the relative demand and supply. And so in- 
tense is that demand, as to have sometimes been sufficient to 
make paper, employed as money, equal in value to gold of the 
same denomination; of which the money of Great Britain is 
a present example. 

It must not be imagined, that the paper-money of that coun- 
try derives its value from the promise of payment in specie, 
which it purports to convey. That promise has been held out 
ever since the suspension of cash payments by the Bank in 
1797, without any attempt at performance, which many peo- 
ple consider impossible.* Gold is only procurable piece-meal, 
and by payment of an agio or per centage; in other words, 
by giving a larger amount in paper for a smaller amount in 
gold. Yet the paper, though depreciated, is invested with 
value far exceeding that of its flimsy material. Whence, then, 
is that value derived? From the urgent want, in a very ad- 
vanced stage of society and of industry, of some agent or me- 
dium of exchange. England, in its actual state, requires, for 
the effectuation of its sales and purchases, an agent or medium 
equal in value, say to 1,284,000 lbs. weight of gold; or, what 
is the same thing, to 1,200,000,000 lbs. weight of sugar; or, 
what is still the same thing, to 60,000,0001. sterling of paper, 
taking the Bank of England paper at 30 millions and the 
paper of the country Banks at as much more, faj This is the 

* Before the Bank of England can pay off its notes in cash, the govern- 
ment, its principal debtor, must discharge its debts in specie; which it can 
not do, unless it purchase the specie, either with its savings, or with the 
proceeds of further taxation. In doing so, it would, in effect, substitute 
a new and very costly engine of circulation, which must be purchased by 
the state, for the present one, which, although much out of order, and 
altogether destitute of intrinsic value, is yet made to do the business well 
enough. 



faJ It must not be supposed, that our author is ignorant of the wide dif- 
ference between Bank of England and country bank paper, viz: that the 
one is paper money, the principal; the other, its convertible representa- 
tive. This position is perfectly correct. The credit, embodied, as it 
were, in the provincial paper, is equally an agent of circulation with the 
inconvertible principal, the paper-money; which, but for its presence and 
rivalry, would be required in double the quantity, to maintain the same 



174 ON PRODUCTION. book i, 

reason, why the 60 millions of paper, though destitute of in- 
trinsic value, are, by the mere want of a medium of exchange, 
made equal in value to 1,284,000 lbs. weight of gold, or 
1,200,000,000 lbs, weight of sugar. 

As a proof, that this paper has a peculiar and inherent value, 
when its credit was the same as at present, and its volume or 
nominal amount was enlarged, its value fell in proportion to 
the enlargement, just like that of any other commodity. — 
And, as all other commodities rose in price, in proportion to 
the depreciation of the paper, its total value never exceeded 
the same amount of 1,284,000 lbs. weight of gold, or, 
1,200,000,000 lbs. weight of sugar. Why? Because the busi- 
ness of circulating all the values of England required no larger 
value. No government has the power of increasing the total 
national money otherwise than nominally. The increased 
quantity of the whole reduces the value of every part; and 
vice versa. * 

Since the national money, whatever be its material, must 
have a peculiar and inherent value, originating in its employ- 
ment in that character, it forms an item of national wealth, in 
the same manner as sugar, indigo, wheat, and all the other 
commodities that the nation may happen to possess.! It fluc- 
tuates in value like other commodities; and like them too is 
consumed, though less rapidly than most of them. Where- 
fore, it would be wrong to subscribe to the opinion of Gar- 
nier {a), who lays it down as a maxim, that, " so long as silver 
remains in the shape of money, it is not an item of actual 
wealth in the strict sense of the word; for it does not directly 
and immediately satisfy a want, or procure an enjoyment." 
There are abundance of values incapable of satisfying a want, 
or procuring an enjoyment in their present existing shape. — 
A merchant may have his warehouse full of indigo, which is 
of no use in its actual state, either as food or as clothing; yet 
it is nevertheless an item of wealth, and one that can be con- 
verted at will, into another value fit for immediate use. Sil- 

* For the consequence of an excessive issue of paper-mone}'', vide infrci. 
Chap. 22, sect. 4., where the subject of paper-itioney is discussed. 

f The multiphcation of a paper-money, and its consequent depreciation, 
effects no augmentation of the wealth of the community, altliough it makes 
necessary a more hbei'al use of figures in the estimation; just in the same 
way as its valuation in wheat instead of silver would do. The total of na- 
tional wealth might be 20,000,000,000 kilogr. of wheat, and but 25,000,000 
kilogr. of silver, and yet the value precisely the same. If the value of the 
money be less intense, it will require more of it to express the same degree 
of value. 



scale of money -prices. Great confusion has hitherto prevailed on this sub- 
ject, for want of a clear conception of the concurrent operation of money 
and its rival, credit. T. 

CaJ Gamier de Saintes, translator of the Wealth of Nations. 



CHAP. XII. ON PRODUCTION. 175 

ver, in the shape of crown pieces, is, therefore, equally an ar- 
ticle of wealth with indigo in chests. Besides, is not the utili- 
ty of money an object of desire in civilized society? 

Indeed, the same writer elsewhere admits that, " specie in 
the coffers of an individual is real wealth, an integral part of 
his substance, which he may immediately devote to his per- 
sonal enjoyment; although, in the eye of political economy, 
this same coin is a mere instrument of exchange, essentially 
differing from the wealth it helps to circulate."* I hope what 
I have said is quite sufficient to show the complete analogy of 
specie to all other items of wealth. Whatever is wealth to an 
individual, is wealth to the nation, which is but an aggregate 
of many individuals; and is wealth also in the eye of political 
economy, which must not be misled by the notion of imaginary 
value, or regard as value any thing, but what all the members 
of the community, individually, as well as jointly, treat as 
value, not nominal, but actual. And this is one proof more, 
that there are not two kinds of truth in this, more than in any 
other science. What is true to an individual, is true to the 
government, and to the community. Truth is uniform; in the 
application only can there be any variety. 



SECTION ly. 



Of the Utility of Coinage, and of the Charge of its Exe- 
cution. 

No mention has hitherto been made of the value, that money 
derives from the impression and coinage. I have merely 
pointed out the various utility of gold and silver as articles of 
commerce, wherein originates their value; and considered 
their fitness to act as money, as part of that utility. 

Wherever gold and silver act as money, they must of course 
be constantly passing from hand to hand. Most people buy 
or sell several times a day; judge, then, what inconvenience 
must ensue, were it necessary to be always provided with 
scales to weigh the money paid or received; and what infinite 
blunders and disputes must arise from awkwardness or defec- 
tive implements. Nor is this all; gold and silver can be com- 
pounded with other metals without any visible alteration. The 
degree of purity can not be exactly ascertained, without a de- 
licate and complex chemical process. The transactions of ex- 
change are wonderfully facilitated, when the weight and stand- 
ard of each piece of money is denoted by an impression, that 
nobody can mistake. 

* Mrege des Frincipes d'Ewnomie Fublique, 1 re partie, c. 4., and the 
advertisement prefixed. 



176 ON PRODUCTION. book i. 

Metals are reduced to an established standard, and divided 
into pieces of an established weight, by the art of coining. 

The government of each state usually reserves to itself the 
exclusive exercise of this branch of manufacture; whether 
with a view of gaining somewhat more by the monopoly, than 
it could, if every body were at liberty to practise it, or to hold 
out to the subjects a more solid security, than any private 
manufacturer could offer, which is more frequently the motive. 
In fact, though governments have too often broken faith in 
this particular, their guarantee is still preferred by the people 
to that of individuals, both for the sake of uniformity in the 
coin, and because there would probably be more dijEculty in 
detecting the frauds of private issuers. 

The coinage unquestionably adds a value to the metal coin- 
ed; that is to say, a lump of silver, wrought into a 5fr. piece, 
is better than an equal weight of bullion of like standard; and 
for a very simple reason. The fashion given to the metal 
saves the person, that takes it in course of exchange, all the 
charges of weighing and assaying, among which the loss of 
time and labour must be reckoned; just in the same manner, 
as a coat ready made is worth more than the materials it is to 
be made of. Even if the business of coining were open to all 
the world, and government confined itself to fixing the stand- 
ard, the weight, and the impression, that each piece should 
possess, still the holders of bullion would find it answer to pay 
a premium to the coiner, for coining their bullion into money; 
otherwise, they would have some difficulty in efiecting an ex- 
change, and would, perhaps, lose more on the exchange, than 
it would cost to have the bullion converted into coin. 

But the additional value, thus communicated to the precious 
metals by the coinage, must not be confounded with that, 
which bullion, as an article of trade, receive from the circum- 
stance of its employment as money. The latter attaches upon 
the whole stock of gold and silver in existence, a silver tank- 
ard is of greater'value, because that metal is employed as money, 
whereas, the additional value accruing from the coinage is pe- 
culiar to the specific portion coined, in like manner as the 
fashion is peculiar to the goblet; and is wholly independent of 
the value, that the commodity, silver, derives from its various 
utility. 

In England, the whole expense of coinage is defrayed by 
the government; the same weight of guineas is delivered at the 
mint in return for a like weight of bullion of the legal standard. 
The nation, in quality of consumer of money, is gratuitously 
presented with the charges of coining, which are levied by 
taxation upon them in their other character of payers of taxes. 
Yet gold, in the shape of guineas, has an evident advantage 
over bullion; not that of being ready weighed, for people are 
often at the pains of re-weighing, but that of being ready 
assayed. Consequently, it has happened sometimes, that bul- 
lion has been carried to the mint, not to be converted into coin, 



CHAP. XXI. ON PRODUCTION. 177 

but merely to have the standard ascertained, and certified to 
the foreign or domestic purchaser.(a) For guineas are a better 
article of export than bullion, inasmuch as bullion, bearing the 
certificate of assay, is preferable to bullion without any such 
certificate. On the contrary, for the purposes of importation 
into England, gold bullion answers every purpose of guineas 
ready coined, and is of just the same value, weight and stand- 
ard being alike; for the mint makes no charge for converting 
the bullion into coin. Foreigners have, in fact, an object in 
keeping back the guineas, which have already received the 
certificate of assay, and remitting bullion to England to obtain 
a like gratuitous certificate. This system, therefore, makes it 
an object to export the coined metal, but holds out no encou- 
ragement to its reimportation.* 

The mischief is somewhat palliated by an accidental circum- 
stance, which never entered into the calculation of the legisla- 
ture. There is no other mint in England, but that of the me- 
tropolis, which is so completely overloaded with business, that 
it can not re-deliver the metal coined till many weeks, and 
often months, after it is brought for coinage, t The conse- 

* It is hardly necessary to repeat, that the specie exported is not so much 
value lost to the communit}'; for nobody will feel inclined to make a present 
of it to the foreigner. Its value is transmitted, for the purpose of obtaining 
a coiTesponding value in return; but the nation loses the value of the coin- 
age in this operation. When guineas are exported from England, she re- 
ceives in exchange the value of the metal only, and nothing for the impres- 
sion it bears. (/;) 

f Wealth of Nations, book i. c. 5. (c) 



(a) That is to say, to receive the certificate of coinage, for use, not in the 
character of money, but as an article of commerce. The assay is charged 
for at the English mint, upon bullion re-delivered without coinage. And, 
before the export of coin was made free, the risk was probably equal to the 
value of the certificate conferred by coinage. These remarks apply to the 
coinage of gold only, silver being now subject to a seignorage of 45 in 66s. 
But silver is no longer the material of the metallic money, except for mi- 
nute and fractional exchanges. T. 

(&) This is hardly true to the full extent. The Spanish dollars pass cur- 
rent in many countries at a considerable advance on bullion of equal 
weight and fineness, and constitute the legal currency of some communi- 
ties, that have not undertaken the business of coinage themselves; as in 
Ha3'ti, and elsewhere. The difference is the local value of the coinage, 
which is paid for sometimes very liberally. But to whom is it paid? to the 
Spanish individual or to the Spanish government. If to the former, it is an 
undue advantage to the individual at the expense of the community; if to 
the latter, it is the recompense of productive agency. Were the gold coin- 
age of England subject to a seignorage like the silver, it would never be 
exported habitually, but to such nations, as were content to pay the extra 
value of the coinage. Indeed, our author presently says in express terms, 
that the value of the coinage is not always lost on exportation. T. 

(c) The practice has fluctuated since Smith's time, but the principle is 
invariable. T. 

30 



178 ON PRODUCTION. book i, 

quence is, that the owner, who leaves his bullion to be coined, 
loses the interest of its value during the whole time it remains 
in the mint. This operates as a small tax on coinage, and 
raises the value of the coin somewhat above that of bullion. 
For it is manifest, that the value would be exactly the same, 
if bullion and guineas were taken without distinction, weight 
for weight. 

So much for the effect of the English regulations on this head. 

All the other governments of Europe, if 1 mistake not, derive 
from the coinage a revenue more than equal to the charges of 
the process.* The exclusive privilege of issuing money which 
they have most properly engrossed, together with the severe 
penalties denounced againstprivate coiners, would enable them 
to raise the profit of the business very high, by the limitation 
of their issues; for the value of money, like that of every thing 
else, is always in the direct ratio to the demand, and in the in- 
verse ratio to the supply. 

In fact, when silver in the shape of coin is so rare and dear, 
that QO Jr. in coin will purchase the weight of 100 /r. of equal 
fineness in the shape of bullion, it is an indication, that the 
public attaches the same value to 9oz. of coined, as to lOoz. of 
uncoined metal. Wherefore, the government can, by its coin- 
age, in such case, give to 9 Jr. the value of 10 Jr., and make a 
profit of 10 per cent. But, if the coin become more abundant, 
and more of it be necessary in exchange for bullion, it may 
perhaps be necessary to give 95 fr. in coin for the weight of 
100 yr. in bullion: in which latter case, the government can 
make a profit of no more than 5 per cent., upon the purchase 
and conversion of bullion into coin. 

If, in the latter case, the government, with a view to in- 
crease the ratio of its profit, instead of purchashig bullion it- 
self, were simply to charge a seignorage, say of 10 per cent, 
upon the bullion brought to the mint for coinage, none at 
all would be brought for that purpose by individuals, who 
would have to pay 10 per cent, for an operation, which added 
5 per cent only to the value of the metal. Thus, the mint 
would have nothing to coin either on public or private account; 
and the government would find a high ratio of profit incompa- 
tible with an extended amount of coinage. 

• One of my German translators, the learned Professor Mwstadt, of Hei- 
delberg-, has observed upon this passage, that since 1810, the Russian g-o- 
vernnient has made no charge for the coinage. It might with equal reason 
execute gratuitously the business of letter-carriage, instead of charging for 
it to the individuals. 

I am periiaps incorrect in saying, that most governments make a profit 
over and above the expense of execution. The French government charges 
a seignorage, equal at most to defray the expense of the mere process. But 
the interest and wear and tear of the capital vested in buildings, machinery, 
&c. and the charge of administration, &c. are so much dead loss to the go- 
vernment; and probably many other governments are in the same predica- 
ment. 



CHAP. XXI. ON PRODUCTION. 179 

Whence it may be concluded, that the duty or seignorage 
upon coinage, which has been so frequently discussed, is an 
absolute nullity; for that governments can not fix their own 
ratio of profit upon the execution of the coinage, but that it 
must depend upon the state of the bullion market, which again 
is regulated by the relative supplies of coined and uncoined 
metal, and the demand for them at the time being. 

It is to be observed, that, to the public at large, in its ca- 
pacity of consumer of coined bullion, it is a matter of perfect 
indifference, whether the coin be dear or cheap; for, so long 
as its value is not subject to sudden fluctuations, it will pass 
current for as much as it has been taken for. 

When the coinage of money is not executed gratuitously, and 
especially when it is paid for at a monopoly-price, it is a matter 
of perfect indifference to the state, whether or not its coin be 
melted down or exported; for it can neither be melted down 
nor exported, without having first paid the coinage in full, 
which is all that is lost by melting or exportation.* On the con- 
trary, the export of such coin is quite as advantageous, as that 
of any other manufactured commodity whatever, it is a branch 
of the bullion trade; and, unquestionably, a coin, so well exe- 
cuted as to be difficult to counterfeit, accurate in the weight 
and assay, and charged with a moderate duty on the coinage, 
may acquire a currency in different parts of the world, and 
yield the government, that issues it, a profit of no contempti- 
ble amount. 

Witness the gold ducats of Holland, which are in request 
throughout all the north of Europe at a higher rate than their 
intrinsic value as bullion; and the dollars of Spain, which are 
all coined at Lima and Mexico, and have been executed with 
so much regularity and integrity, as to pass current as money 
not only all over Spanish America, but likewise in the United 
States and in several parts of Europe, Africa, and Asia.t 

The Spanish dollar is a remarkable instance of the value at- 
tached to the metal by the process of coinage. When the 
Americans of the Union determined upon a national coinage 
of dollars, they contented themselves with simply re-stamping 
those of the Spanish mint, without varying their weight or 
standard. But the piece thus re-stamped would not pass cur- 
rent with the Chinese, and other Asiatics, at the same rate; 
100 dollars of the United States would not purchase so much 
of other commodities as 100 dollars of Spain. The American 
Executive, nevertheless, continued to deteriorate the coin by 
giving it a handsome impression, apparently wishing to avail 

* The value of the coinage, or fashion of the metal, is not always lost in 
the export. The impression is, to a certain degree, a recommendation be- 
yond the limits of the authority which executes it, and raises the value 
somewhat higher, than that of bullion in bars. 

■j- The 5 /»•. pieces of France, have by their invariable uniformity of weight 
and standard since their first issue, acquired a similar currency in many 
parts of the world. 



180 ON PRODUCTION. book i. 

itself of this method of checking the export of specie to Asia. 
For this purpose it was directed, that all exports of specie 
should be made in dollars of its own coinage, hoping in this 
way to make the exporters give a preference to the domestic 
products of its own territory. Thus, after wantonly depre- 
ciating the Spanish dollar, without prejudice, it is true, to the 
specie remaining current within the territory of the Union, it 
went on further to enjoin its use in the least profitable way, 
viz. in the commercial intercourse with those nations, that set 
the least value on it. The natural course would have been, 
to suffer the value exported to go out of the country in the 
form, that might offer the prospect of the largest returns. 
Self-interest might have been safely relied on in this par- 
ticular. (1) 

But what are we to think of the wisdom of the Spanish go- 
vernment, which was enabled, by the confidence in its good 
faith in the execution of its coinage, to export dollars with a 
profit, and sell them abroad at an advance upon their intrinsic 
value; and yet thought fit to prohibit so advantageous a traffic, 
which would have furnished a vent to a product of the national 
soil, worked up by domestic industry for an ample recom« 
pense? 

Though a government be the exclusive coiner of money, 
and is by no means bound to coin gratuitously, it can not with 
justice deduct the expense of coinage from its payments, in 
discharge of its own contracts. If it has engaged to pay a 
million, say for supplies advanced, it can not honestly say to 
the contractor: " We bargained to pay a million, but we pay 
you in specie just coined; and therefore shall deduct 20,000/r., 
more or less, for the charges of coinage.^' In fact, all pecu- 
niary engagements, contracted by government or individuals, 
virtually imply a promise to pay a given sum, not in bullion 
but in coin. The act of exchange, wherein the bargain origi- 
nated, is effected with the implied condition, on behalf of one 
of the contracting parties, to give a commodity somewhat 
more valuable than silver bullion; namely, silver in crown 
pieces, or coin of some denomination or other. The virtual 
contract of government is to pay in coined money; and since, 
in consequence of that implied condition, it obtains a greater 
quantity of goods, than it will, if the bargain be to pay in bul- 



(1) This paragraph contains three eiTors in relation to the coinage of 
dollars by the United States, and the exportation of specie, v/hich it is of im- 
portance to point out: 1st. Spanish dollars art not, and never have been, 
simply re-stamped at our mint, without varying- their weight or standaivi: 
2d. A pound, Troy, of Spanish dollars, contains 10oz.l5dvvts. of fine silver: 
A pound, Troy, of American dollars contains lOoz. 14d\vts. 5 grains of fine 
silver: 3d. No law has ever been enacted by Congress, directing the ex- 
portation of specie to be made in dollai's of our own coinage; nor has the 
executive the power to regulate, or in any manner interfere with the exporta- 
tion of specie from the United States. Ameeicast Editor. 



CHAP. XXI. ON PRODUCTION. 181 

lion. In this instance, it offers the charge of coinage into the 
bargain at the time of concluding the contract, and thereby 
obtains better terms, than if it is in the habit of paying in bul- 
lion. 

The charges of coinage should be deducted from the metal 
brought to the mint to be coined, at the time of its re-delivery 
in a coined state. 

These considerations lead us to the necessary conclusions, 
— that the manufacture of bullion into coin increases the value 
of the metal, in the ratio of the additional convenience result- 
ing to the community, from the circumstance of coinage, and 
not an item further, whatever charges or duties the state may 
attempt to saddle it with;* that a government, by monopo- 
lizing the business of coining, may make a profit to the whole 
extent of this accession of value; that it can not possibly ad- 
vance this profit any further, in its discharge of engagements, 
fairly and freely entered into; and that it can not do so with 
regard to prior engagements, without committing an act of 
partial bankruptcy. 

Moreover, it is evident, that, in all dealings between indivi- 
duals, the public authority has still less power, by means of 
the impression of its die, to make the commodity, acting as 
money, pass for more than its intrinsic value, plus the value 
added by the fashion it receives. Vain will be any enact- 
ment, that the stamp impressed shall give to an ounce of sil- 
ver a specific or determinate value; it will never buy more 
goods, than an ounce of silver, bearing that impression, is 
worth at the time being. 



SECTION V. 



Of JUterations of the Standard Money. 

The first thing to be observed on this head is, that the pub- 
lic authority has generally taken upon itself to fix arbitrarily 
the commodity, that shall serve as money. This assumption, 
on its part, has little inconvenience in itself; for the interests 
of the nation and of the ruling power happen to be exactly the 
same. Should a government attempt to force an ill-adapted 
medium into circulation, it would sustain a loss itself on every 
bargain, and the people would, by degrees, adopt some other 

* In Spanish America, a hig-hei' duty is charged, amounting according to 
Humboldt to 11 1-2 per cent, on silver, and 3 per cent, on gold, over and 
above the actual charges of coinage; for the government allows no bullion 
to be exported in an uncoined state. So that, in fact, this is not a seignor- 
age, but a duty on exportation, exacted at the time of converting the bul- 
lion into coin. 



182 ON PRODUCTION. book i, 

medium. Thus, the first issue of coined money among the 
Romans was their King Numa, and his coinage was of copper, 
which at that time of day was the properest metal for the pur- 
pose; for, before the time of Numa, the Romans knew no other 
money but copper in bars. On the same principle, modern 
governments have made choice of gold and silver, which would 
undoubtedly have been selected by the general accord of in- 
dividuals, without the interference of their rulers. 

But the sovereign power, being firmly persuaded, that its 
mandate was necessary and competent to invest any commo- 
dity whatever with the currency of money, succeeded in im- 
pressing its subjects with the same notion during the darker 
ages, and 'that too at the very time, that individuals, with a 
view to personal interest, were acting upon principles diame- 
trically opposite; for, whoever was dissatisfied with the au- 
thorized money, either abstained from selling altogether, or 
disposed of his goods in some other way. 

This error led to another of much more serious mischief, 
that has overset all order whatever. 

The public authority persuaded itself, that it could raise or 
depress the value of money at pleasure; and that, on every 
exchange of goods for money, the value of the goods adjusted 
itself to the imaginary value, which it pleased authority to 
affix to it, and not to the value naturally attached to the agent 
of exchange, money, by the conflicting influence of demand 
and supply. 

Thus, when Philip I. of France, adulterated the livre of 
Charlemagne, containing 12oz, of fine silver,* and mixed with 
it a third part alloy, but still continued to call it a livre, though 
containing but 8oz. of fine silver, he was nevertheless fully 
persuaded, that his adulterated livre was worth quite as much 
as the livre of his predecessors. Yet, it was really worth 1-3 
less than the livre of Charlemagne. A livre in coin would 
purchase but 2-3 of what it had done before. However, the 
creditors of the monarch, and of individuals, got paid but 2-3 
of their just claims; land-owners received from their tenants 
but 2-3 of their former revenue, till the renewal of leases 
placed matters on a more equitable footing. Abundance of 
injustice was committed and authorized: but, after all, it was 
impossible to make 8oz. of fine silver equal to 12. t 

* The measure of weight called a livre contained 12oz. in the time of 
Charlemagne. 

■j- According to the principles established suprd Sect. 3. of this Chapter, 
there is reason to beheve, that the value of tlie adulterated livre of 8oz. of 
fine silver might have been kept up to that of the old livre of 12oz., 
if the volume of the coin had not been augmented. But the rise of money- 
prices, consequent upon the adulteration of the coin, is a ground of pre- 
sumption, that the government, with a view to profit by this monetary 
operation, ordered a re-coinage, and made 12 pieces out of 8, by the addi- 
tion of alloy, so as to increase the total quantity proportionately to the re- 
duction of the standard of quality. 



CHAP. XXI. ON PRODUCTION. 1S3 

In the year 1113, the livre, as it was still called, contained 
no more than 6oz. of fine silver. At the commencement of 
the reign of Louis VII. it had been reduced to 4oz. St. Louis 
gave the name of livre to a quantity of silver weighing but 
2oz. 6 gros. 6 grains.* At the era of the French revolution, 
the money bearing that name weighed only the 1-6 of an oz. ; 
so that it had been reduced to 1-72 of its original standard of 
weight or quality in the days of Charlemagne. 

I take no notice, at present, of the great fall experienced in 
the relative value of fine silver to commodities at large, which 
has been reduced so low as 1-4 of its former amount; but this 
is foreign to the subject of the present section, and I shall take 
occasion to speak of it hereafter. 

Thus the term, livre tournois, has at different times been 
applied to very different quantities of fine silver. The altera- 
tion has been effected, sometimes by reducing the size and. 
weight of the coin bearing that denomination, sometimes by 
deteriorating the standard of quality, that is to say, mixing up 
a larger portion of alloy, and a smaller one of pure metal; and, 
sometimes, by raising the denomination of a specific coin; mak- 
ing, for instance, what was before a 2//'. piece pass under the 
name of one of Sfr. As no account is ever taken of any thing 
but the pure silver, which is the only valuable substance in 
silver coin, all these expedients have had a similar effect; for 
this reason; that they all, in fact, reduced the quantity of silver 
contained in what was called a livre tournois. And this is 
what all French writers, in compliment to the royal ordinances, 
have dignified by the term, raising the standard; on the ground, 
that the nominal value of the coin is raised by these opera- 
tions; which might, with much more propriety, be said to 
lower the standard, since the metal, which alone constitutes 
the money, is thereby reduced in quantity. 

Though the quantity of metal in the livre has been continu- 
ally decreasing from the days of Charlemagne till the present 
period, many of our monarchs have, at different times, adopted 
a contrary course, and advanced the weight and standard of 
quality, particularly since the reign of St. Louis. The mo- 
tives for deterioration are evident enough: it is extremely con 
venient to pay one's debts with less money than one borrowed. 
But kings are not only debtors; they are very frequently credi- 
tors too. In the matter of taxation, they stand precisely in the 
same relative position to the subject, as landlords to their 
tenants. Now, if every body be enabled by law to pay their 
debts and discharge their contracts with a less amount of silver 
than bargained for, the subject, of course, can pay his taxes, 
and the tenant his rent, with a smaller quantity of that metal. 
And, although the king received less silver, yet he continued 

* We find in the Frolegomenes of Le Blanc, 25, that the silver sol of St. 
Louis weighed 1 gros. 7 1-2 grains which, multiplied by 20, makes 2oz. 6 
gros. 6 grains, the livre. 



1S4 ON PRODUCTION. booki. 

to spend as much as before; for the nominal price of commodi- 
ties rose, in proportion to the diminution of metal in the coin. 
When what was before 2> fr. was declared by law to be 4yr., 
the government was obliged to pay ^fr. where it before paid 
but ^ fr. ; so that it was necessary, either to increase the old, 
or to impose new taxes; in other words, the government, to 
obtain the same quantity of fine silver, was obliged to demand 
a greater number of livres from the subject. This course, 
however, was always odious, even when it really made no 
difference in the real pressure of taxation, and was often quite 
impracticable. Recourse was, therefore, had to restoration 
of the coin to the higher standard. The livre being made to 
contain a greater weight of silver, the nation really paid more 
silver in paying the same number of livres.^ Thus we find, 
that the ameliorations of the coin commence nearly about the 
same period, as the establishment of permanent taxation. — 
Before that innovation, the monarch had no personal motive 
for increasing the intrinsic value of the coin he issued. 

It would be a great mistake to suppose, that the frequent va- 
riations of standard alluded to, were effected in the same clear 
and intelligible manner, which I have adopted to explain them. 
Sometimes the alteration, instead of being openly avowed, was 
kept secret as long as possible ;t and this attempt at conceal- 
ment gave occasion to the barbarous technical jargon used in 
this branch of manufacture. At other times, one denomina- 
tion of coin was altered, while the rest were left untouched; 
so that, at a given period, a livre, paid in one denomination, 
contained more silver than if it paid in another. Finally, to 
throw the matter in still greater obscurity, the subject was 
commonly forced to reckon up his accounts, sometimes in livres 
and sous, sometimes in crowns, and to pay in coin represent- 
ing neither livre, sol, nor crown, but either fractions or multi- 
plies of these several denominations. Princes, that resort to 
such pettyfogging expedients, can be viewed in no other light, 
than as counterfeiters armed with public authority. 

The injurious effect of such measures upon credit, commer- 
cial integrity, industry, and all the sources of prosperity, may 

* The same expedient was resorted to by that monster of prodigality, 
the Roman Emperor Heliog'abalus. The taxes of the empire were payable 
in specific gold coin, called aurei, and not in gold by the tale: and the em- 
peror, to enlarge his receipts, made a new issue of aurei, weighing as much 
as 24oz. each. The virtuous Alexander Severus, actuated by an opposite 
motive, made a considerable reduction of the weight. 

■\ Philip de Valois, in his official instructions to the officers of the mint, 
A. D. 1350, enjoins the utmost secrecy on the subject of the purposed 
adulteration, even with the sanction of an oath, for the express purpose of 
taking in the commercial classes: directing them " to put a good face upon 
the matter of the course of exchange of the mark of gold, so that the in- 
tended adulteration might not be discovered." Many similar instances 
are to be met with in the reign of King John. Le Blanc, Traite Hist, des 
Monnaies, p. 251. 



OHAP. XXI. ON PRODUCTION. 185 

be easily conceived; indeed, it was so serious, that, at several 
periods of our history, the monetary operations of the state 
suspended all commerce whatever. Philip le Bel drove all 
foreigners out of the fairs of France, by compelling them to 
receive his discredited coin in payment, and prohibiting the 
making of bargains in a coin of better credit.* Philip de Va- 
lois did the same thing with respect to the gold coin, and with 
precisely the same result. Acotemporary chroniclert informs 
us, that almost all foreign merchants discontinued their deal- 
ings with France; that the French traders themselves, ruined 
by the frequent altera|:ions of the coin, and the consequent 
uncertainty of values, withdrew to other countries; and that 
the rest of the king's subjects, both noble and bourgeois, were 
equally impoverished with the merchants; for which reason, 
the annalist adds simply enough, the king was not at all be- 
loved. 

The examples I have cited are taken from the monetary 
system of France; but similar expedients have been practised 
in almost every nation, ancient or modern. Popular forms of 
government have been equally culpable with those of a des- 
potic character. The Romans, during the most glorious pe- 
riods of the republic, effected a national bankruptcy more than 
once, by deteriorating the intrinsic value of their coin. In the 
course of the first Punic war, the as, which was originally 12 
oz. of copper, was reduced to 2oz.; and, in the second Punic, 
was again lowered to loz. J 

In the year 1722, the state of Pennsylvania, which acted, in 
this particular, as an independent government, even before 
the American war, passed a law, enacting, that 1/. sterling 
should pass for \l. 5,s.;§ and the United States, and France 
also, after declaring themselves republics, have both gone 
still further. 

*'It would require a separate treatise," says Steuart, "to in- 
vestigate all the artifices which have been contrived to make 
mankind lose sight of the principles of money, in order to 
palliate and make this power in the sovereign to change the 
value of the coin appear reasonable."|| lie might have added, 
that such a volume would be of little practical service, and by 
no means prevent the speedy adoption of some new device 
of the same kind. The only effectual preventive would be, 
the exposure of the corrupt system, that engenders such abuses: 
were that system rendered simple and intelligible, every abuse 
would be detected and extinguished in the outset. 

* Le Blanc, Traits Hist, des Monnaies, p. 27. 
-j- MattJdeu Villani. 

4: Montesquieu, Esprit des Lois, liv. xxii. c. 1 1. 
§ Smith's Wealth of Nations, book ii. c. 2. 

II Steuart's Inquiry into the Princ. Pol. Econ. 8vo. 1805, vol.ii. p. 30G. 
SI 



186 ON PRODUCTION. book i. 

And let no governments imagine, that, to strip them of the 
power of defrauding their subjects, is to deprive them of a 
valuable privilege. A system of swindling can never be 
long-lived, and must infallibly in the end produce much more 
loss than profit. The feeling of personal interest is that which 
soonest awakens the intellectual faculties of mankind, and 
sharpens the dullest apprehensions. Wherefore, in matters 
affecting personal interest, a government has the least chance 
of outwitting its subjects. Individuals are not easily duped 
by measures tending to procure supplies to the state in an un- 
der-hand manner: and although they can not guard against di- 
rect outrage, or breach of public faith, yet it can never long 
escape their penetration, however artfully disguised and con- 
cealed. The government will acquire a character for cunning 
as well as faithlessness, and will lose entirely the powerful 
engine of credit, which will operate with infinitely more effi- 
cacy, than the mere trifle that fraud can procure. Yet, even 
that trifle will often be wholly engrossed by the agents of 
government, who are sure to turn every act of injustice towards 
the subject to their own private advantage. ' Thus, while 
the government loses its credit, its agents get all the profit; 
and the public authority is disgraced, for no other purpose, 
than to enrich its menials. 

The real interest of a government is, to look not to fictitious, 
disgraceful, and destructive resources, but to such as are really 
prolific and inexhaustible; and one can render it no better ser- 
vice, than to expose and render abortive those of the former 
kind, and to point out to it those of the latter. 

The immediate consequence of a deterioration of the coin is, 
a proportionate reduction of all debts and obligations payable 
in money ; of all perpetual or redeemable rent-charges, whether 
upon the state or upon individuals; of all salaries, pensions, 
and rack-rents; in short, of all values previously expressed in 
money; by which reduction, the debtor gains what the credi- 
tor loses. It is a legal authorization of a partial bankruptcv, 
or compromise, by every money-debtor with his creditor, for 
a sum less than his fair claim, in the ratio of the diminution 
of precious metal in the same denomination of coin. 

Thus, whatever government has recourse to this expedient, 
is not content with giving itself an illegitimate advantage, but 
urges all other debtors to do so likewise. 

The kings of France, however, have not always allowed 
their subjects to reap the same advantage in their private con- 
cerns, which the monarch proposed to himself by the opera- 
tion of increasing or diminishing the quantity of metal con- 
tained in a particular denomination of coin. Their personal 
motive was, on all such occasions, to pay less, or receive more 
silver or gold themselves, than in honesty they ought; but they 
sometimes compelled individuals, notwithstanding the altera- 
tion, to pay and receive in the old coin, or, if in the new, at 



CHAP. XXI. ON PRODUCTION. 187 

the current rate of exchange between the two.* This was a 
close copy of a Roman precedent. When that republic, in the 
second Punic war, reduced the as of copper from two oz. to 
one, the republic paid its creditors 1 as instead of two, that 
is to say, 50 per cent, on their claims. But private accounts 
were kept in denarii; and the denarius, which till then was 
worth 10 asses, was, by law, made to pass for 16 asses; so that 
individuals paid 16 asses or oz. of copper only for every dena- 
rius, instead of paying 20 as they should have done to fulfil 
their engagements, that is to say, 10 asses of 2 oz. or 20 of 1 
oz. each, for every denarius. Thus, the republic paid a divi- 
dend of 50 per cent, only, but compelled private persons to 
pay one of 80 per cent. 

A bankruptcy, effected by deterioration of the coin, has 
been sometimes considered in the light of a plain and simple 
bankruptcy, or mere reduction of the public debt. It has 
been thought less injurious to the public creditor to pay him 
iu adulterated coin, that he again may pay over at the same 
rate, as he receives it, than to curtail his claim by ■?, i, or 
in any other proportion. Let us see how the two methods 
differ. 

In either case, the creditor is equally a loser in all his pur- 
chases posterior to the bankruptcy. Whether his income be 
abridged by one half, or whether he find himself obliged to 

{)ay for every thing twice as dear as before, is to him precise- 
y the same thing. 

As to all his own existing debts, he may undoubtedly get 
rid of them on the same terms as the public has discharged 
his own claim; but what ground is there for supposing, that 
the public creditors are always in arrear in their private ac- 
counts with the rest of the community? They stand in the 
same relation to society as all other classes; and there is every 
reason to believe, that the public creditors have as much owing 
to them by one set of individuals as they owe themselves to 
another; in short, that the accounts will square. Thus, the in- 
justice they do to their private claimants is balanced by the 
injury they receive; and a bankruptcy, in the shape of a de- 
terioration of the coin, is to them full as bad, as in any other 
shape. 

But it is attended with other serious evils, destructive of 
national welfare and prosperity. 

It occasions a violent dislocation of the money-prices of com- 
modities, operating in a thousand different ways, according to 
the particular circumstances of each respectively, and thereby 
disconcerting the best planned and most useful speculations, 
and destroying all confidence between lender and borrower. 
Nobody will willingly lend when he runs the risk of receiving 
a less sum than he has advanced; nor will any one be in a 

* Vide the several ordinances of Philip le Bel in 1303; of Philip de Va- 
lois in 1329 and 1343; of John in 1354; and of Charles VI. in 1421. 



188 ON PRODUCTION. book i. 

hurry to borrow, if he is in danger of paying more than he 
gets. Capital is, consequently, diverted from productive in- 
vestment; and the blow, given to production by deterioration 
of the coin, is comm.only followed up by the still more fatal 
oaes of taxation upon commodities, and the establishment of a 
maximum of price. 

Nor is the effect less serious in respect to national morality. 
People's ideas of value are kept in a state of confusion for a 
length of time, during which knavery has an advantage over 
honest simplicity, in the conduct of pecuniary matters. More- 
over, robbery and spoliation are sanctioned by public practice 
and example; personal interest is set in opposition to integrity j 
and the voice of the law to the impulse of conscience. 



SECTION VI. 



Of the reason why Money is neither a Sign nor a Measure. 

Money would be a mere sign or representative, had it no 
intrinsic value of its own; but, on the contrary, whenever it is 
employed in sale or purcbase, its intrinsic value alone is con- 
sidered. When an article is sold for a 5 fr. piece, it is not the 
impression or the name, that is given or taken in exchange, 
but the quantity of silver, that is known to be contained in it. 
As a proof of the truth of this position, if the government were 
to issue crown pieces made of tin or pewter, they would not 
be worth so much as those of silver. Though declared by 
law to be of equal value, a great many more of them would be 
required in purchase of the same commodities; which could 
not happen, if they were nothing but a mere sign. 

Violence, ingenuity, or extraordinary political circum- 
stances, have sometimes kept up the current value of a money, 
after a reduction of its intrinsic value; but not for any length 
of time. Personal interest very soon finds out whether more 
value is paid than is received, and contrives some expedient to 
avoid the loss of an unequal and unfair exchange. Even when 
the absolute necessit}^ of iinding some medium of circulation 
of value obliges a government to invest with value an agent, 
destitute either of intrinsic value or substantial guarantee, the 
value, attached to the sign by this demand for a medium, is 
actual value, originating in utility, and makes it a substantive 
object of traffic. A bank of England note is of no value what- 
ever as a representative; for it really represents nothing, and 
is a mere promise without security, given by a bank, which 
has advanced it to the government without any security; yet 
this note is, by its mere utility, possessed of as positive value 
in England, as a piece of gold or silver. 






CHAP. XXI. ON PRODUCTION. 189 

But a bank-note, payable on demand, is the representative, 
the sign, of the silver or specie, which may be had whenever 
it is vvanted, on presenting the note. The money or specie, 
which the bank ^^ives for it, is not the representative, but the 
thing represented. 

When a man sells any commodity, he exchanges it, not for 
a sign or representative, but for another commodity called 
money, which he supposes to possess a value equal to the value 
sold. When he buys, he does so, not with a sign or represen- 
tative, but with a commodity of real, substantial value, equi- 
valent to the value purchased. 

A radical error, in this particular, has given rise to another 
of very general prevalence. Money having been pronounced to 
be the sign of all values whatever, it was boldly inferred, that, 
in every country, the total value of the money, bank and other 
notes, and credit paper, is equal to the total value of all other 
commodities. A position, that derives some show of plausibili- 
ty, from the circumstance, that the relative value of money de- 
clines when its quantity is increased, and advances when that 
quantity is diminished. 

It is obvious, however, that the same fluctuation affects all 
other commodities whatever. If the vintage be twice as pro- 
ductive one year as it is another year, the price of wine falls 
to half what it was the year preceding. In like manner, one 
may readily concede, that, should the aggregate of circulating 
specie be doubled, the prices of all goods would be doubled 
also; in other words, twice the quantity of specie would go to 
the purchase of the same articles. But this consequence by no 
means proves, that the total value of the circulating medium is 
always equal to the sum total of all the other items of wealth, 
any more, than that the sum total of the produce of the vin- 
tage is equal to the totality of other values. The casual fluc- 
tuation in the value of silver and of wine, in the cases supposed, 
is the effect of a difference in quantity of these respective 
commodities at two different tiroes, and has nothing to do with 
the quantity of other commodities. 

It has been already remarked, that the total value of the 
money of any country, even with the addition to the value of 
all the precious metals contained in the nation under any other 
shape, is but an atom, compared with the gross amount of other 
values. Wherefore, the thing represented would exceed in 
value the representative; and the latter could not command 
the presence or possession of the former.'^' 

* If credit-paper be thrown into the scale, it will not help us over this 
difficulty. The agent of cu'culation, whether in the form of specie or of 
paper, can never exceed in amount the total utility vested in it. The ex- 
pansion of the volume of a national money, whether of metal or of paper, 
is sure to befollovv'ed by a proportionate dilution of its value, which disables 
the whole from being' equal to the purchase of a greater jiortion of commo- 
dities at large: and the value, devoted to the business of circulation, is al- 



190 ON PRODUCTION. book i. 

Nor is the position of Montesquieu, that money-price de- 
pends upon the relative quantity of the total commodities, to 
that of the total money of the nation* at all better founded. 
What do sellers and buyers know of the existence of any other 
commodities, but those, that are the objects of their dealing? 
And what difference could such knowledge make in the de- 
mand and supply in respect to those particular commodities? 
These opinions have originated in the ignorance at once of 
fact and of principle. 

Money or specie has with more plausibility, but in reality 
with no better ground of truth, been pronounced to be a mea- 
sure of value. Value may be estimated in the way of price; 
but it can not be measured, that is to say, compared with a 
known and invariable measure of intensity, for no such mea- 
sure has yet been discovered. 

Authority, however absolute, can never succeed in fixing 
the general ratio of value. It may enact, that John, the owner 
of a sack of wheat, shall give it to Richard for 24 /r.; and so 
it may that John shall give his sack of wheat for nothing. This 
enactment will probably rob John to benefit Richard; but it 
can no more make 24: Jr. the exact measure of the value of a 
sack of wheat, than it can make a sack of wheat worth nothing, 
by ordering it to be given for nothing. 

A yard or a foot is a real measure of length; it always pre- 
sents to the mind the idea of the self-same degree of length. 
No matter in what part of the world a man may be, he is quite 
sure, that a man of 6 feet high in one place is as tall as a man 
of 6 feet high in another. When I am told that the great pyra- 
mid of Ghaiz6 is 100 toises square at the base, I can measure 
a space 100 toises square at Paris, or elsewhere, and form an 
exact notion of the space the pyramid will cover; but when I 
am told, that a camel is at Cairo worth 50 sequins, that is to 
say, about 2500 grammes of silver, or 500 Jr. in coin, I can 
form no precise notion of tlie value of the camel; because, al- 
though I may have every reason to believe, that 500 Jr. are 
worth less at Paris than at Cairo, I can not tell what may be 
the difference of value. 

The utmost, therefore, that can be done is, merely to esti- 
mate or reckon the relative value of commodities; in other 
words, to declare, that at a given time and place, one commo- 
dity is worth more or less than another: their positive value it 
is impossible to determine. A house may be said to be worth 
20,000//*.; but what idea does that sum present to the mind? 
The idea of whatever I can purchase witn it; which is, in fact, 
as much as to say, the idea of value equivalent to the house, 
and not of value of any fixed degree of intensity, or independ- 
ent of comparison between one commodity and another. 

ways a trifle, compared with the value it is employed to circulate. Vide 
infra, under the head of Bank-notes. 

* Esprit des Lois, liv. xxii. c. 7. 



CHAP. XXI. ON PRODUCTION. 191 

When two objects of unequal value are both compared to 
different portions of one specific product, still it is a mere es- 
timate of relative value. One house issaid to be worth 20,000yr. 
another 10,000/r,; which is simply saying, the former is worth 
two of the latter. It is true, that, when both are compared to 
a product capable of separation into equal portions, as money 
is, a more accurate idea can be formed of the relative value of 
one to the other; for the mind has no difficulty in conceiving 
the relation of 2 integers to 1, or 20,000 to 10,000. But any 
attempt to form an abstract notion of the value of one of these 
integers must be abortive. 

If this be all that is meant by the term, measure ofvalue^ 
I admit that money is such a measure; but so, it should be ob- 
served, is every other divisible commodity, though not em- 
ployed in the character of money. The ratio of the one house 
to the other will be equally intelligible, if one be said to be 
worth 1000, and the other only 500, quarters of wheat. 

Nor will this measure of relative value, if we may so call it, 
convey an accurate idea of the ratio of two commodities one 
to the other, at any considerable distance of time or place. The 
1000 quarters of wheat, or 20,000yn, will not be of any use 
in the comparison of a house in former, with a house in the 
present times; for the value of silver coin and of wheat have 
both varied in the interim. A house at Paris, worth 10,000 
crowns in the days of Henry IV., would now be worth a great 
deal more, than another of that value now-a-days. So like- 
wise one in Lower Britanny, worth 20,000yn, is of much more 
value than one of that price at Paris; for the same reason, that 
an income of 10,000yr. is a much larger one in Britanny than 
at Paris. 

Wherefore, it is impossible to succeed in comparing the 
wealth of different eras or different nations. This, m political 
economy, like squaring the circle in mathematics, is impracti- 
cable, for want of a common mean or measure to go by. 

Silver, and coin too, whatever be its material, is a commo- 
dity, whose value is arbitrary and variable, like that of com- 
modities in general, and is regulated on every bargain by the 
mutual accord of the buyer and seller. Silver is more valua- 
ble, when it will purchase a large quantity of commodities, 
than when it will purchase a smaller quantity. It can not, 
therefore, serve as a measure, the first requisite of which is 
invariability. Thus, in the assertion of Montesquieu, when 
speaking of money, that " what is the common measure of all 
things, should of all things be the least subject to change,"* 
there are no less than three errors in two lines. For, in the 
first place, it has never been pretended, that money is the 
measure of all things, but merely that it is the measure of 
values; secondly, it is not even the measure of values; and, 
lastly, its value can not be made invariable. If it was the ob- 

* Esprit des Lois, liv. xxii. c. 3. 



192 ON PRODUCTION. book i. 

ject of Montesquieu to deter governments from altering the 
standard of their coin, he should have laboured to enforce 
those sound arguments, which the question would fairly have 
supplied him with, instead of dealing in brilliant expressions, 
which serve to mislead and give currency to error. 

It would, however, often be a matter of curiosity, and some- 
times even of utility, to be able to compare two values at an 
interval of time or place; as, for instance, when there is occa- 
sion to stipulate for a payment at a distant place, or a rent for 
a long prospective term. 

Smith recommends the value of labour as a less variable, 
and, consequently, more appropriate, measure of absent or dis- 
tant value; he reasons thus upon the matter: " Equal quanti- 
ties of labour, at all times and places, may be said to be of 
equal value to the labourer. In his ordinary state of health, 
strength, and spirits, in the ordinary degree of his skill and 
dexterity, he must always lay down the same portion of his 
ease, his liberty, and his happiness. The price, which he pays, 
must always be the same, whatever may be the quantity of 
goods which he receives in return for it. Of them, indeed, it 
may sometimes purchase a greater and sometimes a smaller 
quantity; but it is their value which varies, not that of the la- 
bour which purchases them. At all times and places, that is 
dear, which it is difficult to come at, or which it costs much 
labour to acquire; and that cheap, which is to be had easily, or 
with very little labour. Labour alone, therefore, never vary- 
ing in its own value, is alone the ultimate and real standard, 
by which the value of all commodities can at all times and 
places be estimated and compared."* 

With great deference to so able a writer, it by no means 
follows, that, because labour in the same degree is always to 
the labourer himself of the same value, therefore it must al- 
ways bear the same value as an object of exchange. Labour, 
like commodities, may vary in the supply and demand; and 
its value, like value in general, is determined by the mutual 

* Wealth of Nations, book i. c. 5. On this point, Smith obsei'ves, that 
"labour was the first price, the original purchase-money, that was paid for 
all things. It was not by gold or silver, but by labour, that all the wealth 
of the world was originally purchased." I think I have succeeded in prov- 
ing that he is mistaken. Nature executes an essential part of the produc- 
tion of values; and her agency is in most cases paid for, and forms a portion 
of the value of the product. The profit of land, which is called rent, is 
paid to the proprietor, who does nothing himself, and stands in place of the 
original occupant; and it affects the value of the product, raised by the 
joint ag-ency of nature and industry: the portion of value contributed by na- 
ture is not the product of human labour. Capital also, which is, for the 
most part, the accumulated product of labour, concurs, like nature, in the 
business of production, and receives in recompense a portion of the pro- 
duct; but tlie gains, accruing to the capitalist, are quite distinct from the 
accumulated labour vested in the capital itself, which can be expended or 
consumed in toio, by one set of persons; while its share in the product, in 
other words, the interest paid for its use, may be consumed by another. 



ruAv. xxT. ON PRODUCTION. 193 

accord of the adverse interests of buyer and seller, and fluctu- 
ates accordingly. 

The value of labour is affected materially by its quality. The 
labour of a strong and intelligent person is worth much more, 
than that of a weak and ignorant one. Again, labour is more 
valuable in a thriving community, where there is a lively de- 
mand for it, than in a country overloaded with population. In 
the United States, the daily wages of an artificer amount in 
silver to three times as much as in France.* Are we to infer, 
that silver has then but i of its value in France? The artificer 
is there better fed, better clothed, and better lodged; which is 
a convincing proof, that he is really better paid. Labour is 
probably one of the most fluctuatinj^ of values, because at times 
it is in great request, and at others is offered with that distress- 
ing importunity occasionally witnessed in cities where indus- 
try is on the decline. 

Its value has, therefore, no better title to act as a measure 
of two values at great distances of time or place, than that of 
any other commodity. There is, in fact, no such thing as a 
measure of value, because there is nothing possessed of the in- 
dispensable requisite, invariability of value. 

In the absence of an exact measure, we must be content to 
approximate to accuracy; and, to this end, many commodities 
of well known value will serve to give a notion, more or less 
correct, of the value of any specific product. At the same point 
of time and place, there is little difficulty in the approxima- 
tion: the value of any given article may be readily measured 
by almost all others. To ascertain pretty nearly the value of 
an article amongst the ancients, we must find out some article 
which there is reason to think has subsequently undergone lit- 
tle change of value, and then compare the quantity of that ar- 
ticle given by the ancients and moderns respectively, in ex- 
change for the article in question. Wherefore, silk would be 
a bad object of comparison; because it was, in the time of 
Csesar, procurable from China only, at a most extravagant ex- 
pense, and, being then no where produced in Europe, must of 
course have been much dearer than at present. Is there any 
commodity that has varied less in the intervening period? and, 
if there be any such, how much of it was then given for an 
ounce of silk? These are the two points we must inquire into. 
If any one article can be discovered, that was produced with 
equal ease and perfection at the two periods, and the consump- 
tion of which had a natural tendency to keep pace with its 
abundance, this article would probably have varied little in 
value, and may be taken as a tolerable measure of other values. 

Ever since the earliest times recorded in history, wheat has 
been the staple food of the great mass of the population, in all 
the principal nation^; of Europe; consequently, their relative 

• Humboldt reckons it at from S/r. 50 cents, to 4:fr. of our money. JSssa^- 
Pol. sur la Nouvelle Espagne, torn. iii. p. 105. oct. ed. 

33 



194 ON PRODUCTION. book i. 

population must have been influenced by the abundance or 
scarcity of this article of food, more than of any other: the 
ratio of the demand to the supply must have been, therefore, 
at all times nearly the. same. There is, besides, no product 
which I know of, that has undergone less alteration in the 
costs of production. The agricultural skill of the ancients 
was in most respects equal, and in some perhaps superior to 
our own. Capital, indeed, was dearer amongst them; but that 
difference was little felt; for, in ancient times, the proprietor 
was commonly both farmer and capitalist; and the capital em- 
barked in agriculture yielded less return than other invest- 
ments; because, as more honour was attached to this, than to 
the other branches of industry, commerce and manufacture, 
the influx of capital, as well as of labour, into that channel, 
was greater than into the other two. And, during the middle 
ages, in spite of the general declension of all the arts, the til- 
lage of arable land was prosecuted with a skill little inferior to 
that of the present day. 

Whence I infer, that the same quantity of wheat must have 
borne nearly the same value among the ancients, during the 
middle ages and at the present time. But, as there has all 
along been a vast diSerence in the produce of the harvest in 
one year and another, grain being sometimes so abundant, as 
to sell extremely low, and at other times so scarce, as to occa- 
sion famine, the value of grain must be taken on an average of 
years, whenever it is made the basis of any calculation. 

So much for the estimation of values at distant periods of 
time. 

There is equal difficulty in the estimation at great distances 
of place. The staple articles of national food, which, as such, 
maintain the greatest uniformity in the ratio of the demand 
^ and supply, are very different in different climates. In 
Europe, wheat is the staple; in Asia it is rice: the relative 
value of neither the one nor the other in Asia and Europe is 
tolerably steady; nor has the value of Rice in Asia any rela- 
tion to the value of wheat in Europe. Rice is beyond ques- 
tion less valuable in India, than wheat is in this part of the 
world; for, besides that the cultivation is less expensive, it 
yields two crops in the year. This is one reason, why labour 
is so cheap in India and China. 

The article of food in most general use is, therefore, but a 
bad measure of value at great distances of place. Nor are 
the precious metals by any means a correct one: their value 
is indubitably not so great in North America and the West 
Indies, as in Europe, and much greater in every part of Asia, 
as the constant efflux of specie thither sufficiently proves. — 
Yet the frequency of communication between these different 
parts of the world, and the facility of transport, give us reason 
to suppose them the least liable to fluctuation of value on their 
passage from one climate and another. 

There is happily no necessity, for the purposes of commerce, 



CHAP. XXI. ON PRODUCTION. 195 

to compare the relative value of goods and of metals in two 
distant parts of the world; it is quite enough to know their re- 
lation to other commodities in each country. When a mer- 
chant remits to China half an ounce of silver, it is of little im- 
portance to him, whether it has more relative value in China 
than in Europe. All he wants to know is, whether he can 
buy with it at Canton a pound of tea of a certain quality, 
which he can re-sell in Europe, say for two ounces of silver. 
With these data, and in expectation of receiving, at the close 
of the speculation, a gross profit of an ounce and a half of sil- 
ver, he calculates whether that profit will leave him a suffi- 
cient nett profit, after covering the charges and risk out and 
home; and this is all he cares about. If, instead of bullion, 
he remit goods, it is enough for him to know; 1. the relation 
between the value of these goods and silver in Europe; that 
is to say, how much they will cost; 2. the relation between 
their value and that of Chinese products at Canton; that is to 
say, what he can get in exchange for them; and, lastly, the re- 
lation between these latter and silver in Europe; that is to say, 
what they will be worth when imported. It is evident that 
every repetition of this operation brings into question nothing 
more than the relative value of two or more articles at the 
same time, and at the same place. 

For the common purposes of life, or, in other words, when 
nothing more is requisite, than to compare the value of two 
objects, at no great distance of time or place, most commodities 
possessed of any value at all may serve as a measure; and if, 
in describing the value of an object, even where there is no 
question of either buying or selling, the estimation is more 
generally made in the precious metals, or in money, than in 
any other commodity, it is simply, because its value is more 
generally known, than that of other commodities.* But, in 
all bargains for a long prospective period, as for the reserva- 
tion of a perpetual rent, it is more advisable to reckon in 
wheat: for the discovery of a single mine might perhaps 
greatly reduce the present value of silver; whereas the tillage 
of all North America could not sensibly alter the value of 
wheat in Europe: for the number of mouths to be fed in 
America, would increase almost in the ratio of the improved 
cultivation. But long prospective stipulations regarding value 
must unavoidably, under any circumstances, be very precari- 
ous, and can never give any certain notion of the value that 
is likely to be received. Perhaps the most improvident course 
of all is, to stipulate for a particular denomination of money; 

* The difference of value in different objects has, throug-hout this work, 
been noted in money-price, or what they will fetch in money; extreme 
correctness not being necessary for illustration. Even in the exact science 
of geometry, the figures are given merely to make the demonstrations 
more inteUigible; strict accuracy is necessary in the reasoning and conclu- 
sions only. 



196 ON PRODUCTION. book i. 

for the same denomination may be fixed to any variation of 
weight or qualit)^ whatever; and the contracting party may 
find he has bargained for a name, rather than a value, and that 
he runs the risk of paying, or being paid, in mere words. 

I have dwelt thus long upon the refutation of incorrect ex- 
pressions, because they appear to have acquired too general a 
circulation;* and because they often confirm people in false 
notions and ideas, which ideas sometime serve as the basis of 
erroneous systems, that in their turn give birth to conduct 
equally erroneous. 



SECTION VII. 

Of a Particularity, that should be attended to, in estimat- 
ing the Sums mentioned in History. 

In reducing the money of former ages into money of the pre- 
sent day, the best informed historians have contented them- 
selves with converting the actual quantity of gold and silver, 
designated by the term made use of by the authority cited, 
into the current money of their own times. But this is not 
enough: the actual sum, the real amount of the metal, can 
give no correct notion of its then value, Avhich is the very 
point we want to arrive at. It is, therefore, necessary to 
reckon besides the fluctuations of value that the metal itself 
has undergone. 

A few examples will best explain my meaning: 
Voltaire tells us, in his Essay on Universal History ,t that 
Charles V. enacted, that the sons of France should have an 
annual revenue settled on them of 12,000 livres: and, as he 
reckons this sum to be equal to 100,000 livres of the present 
day, he naturally enough observes, that this was no great pro- 
vision for the sons of the monarch. But let us examine the 
grounds for this calculation of Voltaire. First, he reckons 
that the mark of fine silver was, in the time of Charles V., 
worth about 6 livres; at this rate, 12,000 livres will make 2000 
marks of silver, which, at their relative value at the date of 
Voltaire's writing, would in fact amout to 100,000 livres, or 
thereabouts. But 2000 marks of fine silver were worth in the 
reign of Charles V. much more than in the reign of Louis XV. 
Of this we shall be convinced, by a comparison of the relative 
average, at the two different periods, of pure silver to wheat, 
which we will take as one of the least variable. 

• After the appearance of three editions of this work, iS'JswioJZC?* publish- 
ed his Nouveaux Prlncipes d'Econ. Pol,- wherein amongst many excellent 
chapters, there is one entitled, <' Money, the sign, token, and measure of 
▼alue." Liv. v. c. 1. 

I Edit, de Kehl, oct. torn. xvii. p. 394. 



CHAP. XXI. ON PRODUCTION. 1D7 

Dupr6 of St. Maur, whose book* is an ample repository of 
learned information upon the value of commodities, gives it as 
his opinion, that, from the reign of Philip Augustus, who died 
A. D. 1223, until about the year 1520, the setier of wheat 
(Paris measure) was worth, on the average, as much as i of a 
mark of fine silver; i. e. about 512 grains weight. 

About the year 1536, when the mark of silver was of the 
value of 13 livres turnois, or rather passed under the denomi- 
nation of 13 livres turnois, the ordinary price of a setier of 
wheat was about 3 livres turnois, i. e. -^-^ of a mark of fine 
silver, amounting to 1063 grains weight of that metal. 

In 1602, under the reign of Henry IV., the mark of fine 
silver being at that time equal to 22 livres, the average price of 
the setier of wheat was 9liv. IQs. 9d.', i. e. 2060 grains of fine 
silver.t 

Since that period, the setier of wheat has, one year with 
another, been constantly worth about the same weight of sil- 
ver. In 1789, when the mark was equivalent to 54 liv. 19s. 
the average price of wheat was, according to Lavoisier, 24 liv. 
the setier, i. e. 2012 grains of fine silver. I have not reckoned 
the fractions of grains, for in these matters it is enough to ap- 
proximate to accuracy; indeed, the price of the setier, taken at 
the average of Paris and the environs, is itself but loosely 
calculated. 

The result of this comparative statement is, that the setier 
of wheat, whose relative value to other commodities has varied 
little from 1520 down to the present time, has undergone great 
fluctuations, being worth, 

A. D. 1520 - - 512 ^r. of pure silver. 
1536 - - 1063 do. - do. 
1602 - - 2060 do. - do. 

1789 - - 2012 do. - do. 
which shows, that the value of pure silver must have varied 
considerably since the first of these dates; inasmuch as, on 
every act of exchange, four times as much of it must now be 
given for the same quantity of commodities, as was given three 
centuries ago. We shall see by-and-by,J why the discovery 
of the American mines, and the influx into the market of 
about ten times as much silver as before, has operated to re- 
duce its value only in the ratio of 4 to 1. 

Now to the application of this information to the royal stipend 
in question: if pure silver was worth in the time of Charles V. 
four times as much as in the age of Voltaire, the settlement of 
2000 marks upon the sons of France was equivalent to 8000 
marks at the present, that is to say, more than 400, 000 ^r. of 



Rapport entre V Argent et les Denrces, p. 2>5. 

For these calculat 
Variaiions dans le 

i, Book II. Chap. 4. 



■j- For these calculations I am indebted to the Essai sur les Monnaies, and 
the Variations dans les Prix, both bj' Dupre de Saint Maur. 



198 ON PRODUCTION. book i. 

our present currency. Which makes the observation of Vol- 
taire upon the inadequacy of the provision much less appli- 
cable. 

Raynal, though he wrote avowedly upon commercial mat- 
ters, has committed a similar error, in estimating the public 
revenue in the reign of Louis XII. at 36 millions of our pre- 
se-nt money (francs^) on the ground, that it amounted to 
7,650,000 liv. of 11 liv. to the mark of silver. This sum, in- 
deed, was equal to 695,454 marks of silver: but it would not 
be enough merely to reduce the mark into livres of the pre- 
sent day; for the same quantity of silver was then worth four 
times as much as it is now: so that, before reducing them into 
modern money, they should be multiplied by four, which will 
swell the public revenue under Louis XII. to a sum of 144 
millions oi francs of present currency. 

Again, we read in Suetonius, that Cassar made Servilius a 
present of a pearl worth 6 millions of sestertii, which his 
translators. La Harpe and Levesque, estimate to be equal to 
1, 200,000 /r. present money. But a little lower down, we find, 
that Csesar, on his return to Italy, disposed of the gold bullion, 
accruing from the plunder of Gaul, for coin, at the rate of 3000 
sestertii to the pound of gold. Which shows the pearl of Ser- 
vilius to have been much under-rated. The Roman pound, 
according to Le Blanc, weighed 10 2-3 of our ounces; and 
10 2-3 oz. of gold in Caesar's time, were worth as much as 32 
ounces of that metal at the present day: for it may reasonably 
be reckoned, that the value of gold has fallen in the ratio 
of 3 to 1."^ Now 32 oz. of gold 'are worth nearly 3036 /n, 
which may therefore be looked upon as about the real value of 
3000 sestertii: at which rate, the pearl in question must have 
been worth 6,072,000 /r. and the Roman sestertius, somewhat 
more than d. franc of our money; which is greatly beyond the 
ordinary estimate. t 

* 12 oz. of silver were given for one oz. of gold, in Cesar's time. Wherefore, 
silver having- fallen in tlie ratio of 4 to 1, 1 oz. of gold was worth as much in 
his daj-s, as"48 oz. of pure silver, at the present period. But 48 oz. of silver 
are now worth 3 oz. of gold, or thereabouts: so that gold must have fallen 
in the ratio of about 3 to 1. 

f The same error of calculation has led these translators involuntarily to 
Tinder-rate the prodigality of the worst of the emperors. Thus we are told, 
that Caligida, in less' than a year, squandered the whole of the treasure ac- 
cumulated by Tiberius, amounting to 2700 millions of sestertii, which La 
Harpe translates into no more than 540 millions of livres.- whereas, suppos- 
ing the value of gold to have varied little between the days of Caesar and of 
Caligula, which is probable enough, it will be found to amount to very near- 
ly 3000 miUions of livres. Indeed, it seems hardly possible, that a less sum 
would have sufficed for the monstrous extravagancies recorded of him. 

Horace, Epist. 2. lib. ii., speaks of an estate, that, from the context, mu-st 
have been a considerable one, as being of the value of 300,000 sestertii, 
which, according to my view, amounted to 303,600/a of our present money. 
His commentator, Dacier, perverts the meaning of the passage, by estimat- 
ing the estate in question, at 22,500 /r. only. 



CHAP. XXI. ON PRODUCTION. 199 

When Csesar laid hands upon the public treasures of Rome, 
in spite of the opposition of the tribune Metellus, he is stated 
to have found them to consist of 41 30lbs. of gold, and S0,000lbs. 
of silver; which Vertot estimates to have amounted to 2,911,100 
liv. tourn.; but upon what grounds I am at a loss to imagine. 
To form a tolerably correct notion of the treasure seized by 
Caesar upon his usurpation, the 4130lbs. of gold should be re- 
duced into oz. of the French standard, at the rate of 10 2-3 oz. 
to the Roman lb.* which makes 44,052 oz. But, as the same 
weight of gold was then worth three times as much as at pre- 
sent, the value will appear to have been 132,156 oz. or 
12,530,346 //•., supposing the standard of quality in the gold 
to have been the same as at present. The 80,000lbs. weight 
of silver also were then worth as much as 320,000lbs. at the 
present period, i. e. 20,91 5,735 /r., reckoning the Roman lb. at 
10 2-3 oz., and taking the standard of quality to have been the 
same. Wherefore, the sum appropriated by the usurper amount- 
ed to 33,446,081 /r. of our money; which is greatly above 
Vertot's estimate of about 3 millions only. 

From this specimen we may judge, how little reliance can 
be placed on the calculations of other historians, of less infor- 
mation and accuracy, than those I have been quoting. Rollin, 
in his Ancient, and Fleury, in his Ecclesiastical History, have 
reckoned the talentuni, mina and sestertius^ according to the 
scale made out by some learned persons, under the adminis- 
tration of Colbert. This scale is liable to many objections: 
1. it establishes upon very questionable data, the respective 
quantities of the precious metals contained in the coins of the 
ancients, which is a primary source of error: 2. the value of 
the precious metals had considerably varied, between the pe- 
riod of antiquity in question and the ministry of Colbert, 
which is another source of error: 3. the scale of reduction, 
drawn up under the direction of that minister, was calculated 
at the rate of 26 liv. 10 sous, to the mark of silver, being the 
then mint price of silver bullion; but this rate was altered be- 
fore the days of Rollin, which is a third source of error. Last- 
ly, since the date of his publication, that rate has been still 
further altered, and a livre turnois conveys to us the idea of 
a smaller quantity of silver, than it did in his time; and this is 
a fourth source of error. Thus, whoever now takes up that 
work, relying on the calculations therein contained, will en- 
tertain a most erroneous idea of the income and expenditure of 
the states of antiquity, as well as of their commerce, their re- 
sources, and every part of their system and organization. 

* Le Blanc, Traits Monnaies, p. 3, estimates the lloman lb. of 12 oz. at 
the actual weight of only 10 2-3 oz. of our standard, taking- as a guide, the 
weight of some of the coins of the emperors which are in a high state of 
preservation. The valuation, I have here given of the oz. of gold, takes it 
at the mint standard; viz. with a proportion of 1-10 alloy; for 1 take it for 
granted, that the gold, thus laid hands upon by Caesar, was not pure gold, 
but coin with a mixture of alloy. 



200- ON PRODUCTION. book r. 

Not that I would be understood to say, that a writer of his- 
tory can ever have sufficient data, to give his readers, in all 
cases, a correct notion of vahies in general; but, for the sake 
of a closer approximation to accuracy, than has hitherto been 
effected, in reducing the sums of ancient times, and even of 
the middle ages, into modern money, I would recommend, 
what indeed is generally done, first, to inquire from those 
learned in antiquity, the actual weight of precious metal con- 
tained in the coin in question: secondly, as far back as the 
Emperor Charles V., that is to say, about the year 1520, that 
quantity, if gold, must be multiplied by 3 only, and if silver, 
by 4;* because the discovery of the American mines has oc- 
casioned a fall in nearly that proportion: and lastly, to reduce 
that quantity of gold or silver into the current money of the 
period, at which he may happen to be writing. 

From the year 1520 downwards, the value of silver progres- 
sively declined until the latter end of the reign of Henry IV., 
that is to say, towards the beginning of the seventeenth cen- 
tury. We may judge of the depression of its value by the in- 
creasing price of any given commodity, in the manner explain- 
ed in the preceding section. To acquire a correct notion of 
the value of the mark of silver during this period, it will be 
necessary to allow for a diminution in the ratio of the increas- 
ed real, that is, metal, and not nominal or coin, price of com- 
modities in general, or of any one, as wheat for instance, in 
particular. 

From the beginning of the seventeenth century, there will 
be no occasion for any further allowance, after having reduc- 
ed .the money of the time being into marks of silver; for there 
does not appear to have been any further sensible decline in 
the value of silver, since most commodities have been procu- 
rable for the same metal-price. It will be sufficient, there- 
fore, to reduce them into the money current for the time be- 
ing, according to the then current value of the mark of fine 
silver, t 

* Until the period specified, the patio of gold to silver in Europe was 1 to 
12. At present, it is in most nations of Europe 1 to 14, or 1 to 15; so that, 
taking' the average ratio in ancient times at 1 to 11^^ and in modern times 
at 1 to 15, gold will have increased in relative value to silver in the pro- 
portion of 4 to 3. Wherefore, if gold be multiplied by 3, and silver by 4, 
the result will be equal. 

-j- I am disposed to believe, that the value of both gold and silver began 
again to decline about the commencement of the present century, for more 
gold and silver are now given for most of the commodities least liable to 
vary in the costs of production. (a) 

(a) There is reason to believe, that the tide has noAV set strongly the 
other way: 1. Because tlie working of the mines of Spanish America, the 
great source of the production, especially of silver, has been suspended or 
abandoned in consequence of the revolutionary movements. 2. Because 
most of the European nations, and the United States also, are making a si- 



CHAP. XXI. ON PKODUGTlOiN. 201 

By way of illustration, let us take the statement we find in 
the Memoires de Sully, viz. that this minister accumulating, in 
the vaults of the Bastile, a sum of 36 millions of livres tournois, 
to further the designs of his master against the house of Aus- 
tria. If we wish to know the actual value of that hoard, we 
must, in the first place, examine what weight of fine silver it 
amounted to. The mark of fine silver was then represented 
by 22 livres tournois; consequently 36 millions of livres make 
1,636,363 marks, 5 oz. of silver. There has been no sensible 
variation in the value of that metal since the period in ques- 
tion; for the same quantity of metal would then buy the same 
quantity of wheat as at present. Now, at the present time, 
1,636,363 marks, 5 oz. or, in other terms, 399,588,018, 5 
grammes of fine silver, coined into money, will make exactly 
88,797,31 5 /r. A sum, indeed, that would go no great way in 
modern warfare; but it must be considered, that war is now 
conducted on a very different principle, and has become infi- 
nitely more wasteful, in reality as well as in name. 



SE13TI0N VIIL 

Of the Msence of any fixed ratio of Value between one 
Metal and another. 

The same error, which led public functionaries to believe, 
that they could fix the relative value of any metal to commo- 
dities, has also induced them to determine by act of law the re- 
lative value of the metals emploj'-ed as money, one to the other. 
Thus, it has been arbitrarily enacted, that a given quantity of 
silver shall be worth 24 liv. , and that a given quantity of gold 
shall likewise be worth 24 liv. In this manner, the ratio of 
the nominal value of gold to that of silver came to be legally 
established. 

The pretension of authority was in both cases equally vain 
and impotent; and what has been the consequence? The re- 
lative value of the two metals to other commodities has, in 
fact, been constantly fluctuating, as well as the relative value 
of the metals themselves, when exchanged one for the other. 
Before the recoinage of gold, in pursuance of the arret of 13th 
October, 1785, the louis d'or was commonly sold for 25 liv. 
and some sous of the silver coin. Consequently, people took 



multaneous effort to restore the convertibility or par of their paper, which 
is the same thing as discovering a fresh kind of utihty in the metal. 3. Be- 
cause the contraction of credit, the rival of money, consequent upon the 
general decline of prices which this simultaneous attempt has occasioned, 
must still necessarily further enlarge the utility of the metal. T. 
33' 



203 ON PR0DUCTION. book i> 

good care not to pay in gold coin the sums bargained for in 
silver; otherwise they would really have paid 25 liv. and 8 or 
10 sous for every 24 liv. of the sums stipulated. 

Since the recoinage in 1785, when the quantity of gold in 
the louis d'or was reduced by one-sixth, its value has nearl}' 
kept pace with that of 24 liv. in silver; so that gold and silver 
have been paid indifferently. However, it has still continued 
most customary to pay in silver, partly from long habit, and 
partly because the gold coin, being more liable to be clipped 
or counterfeited, was received with more caution and liable to 
more frequent cavils about the weight and quality. 

In England a different arrangement has produced an effect 
directly contrary. In the year 1728, the natural course of ex- 
change fixed the relative value of gold to silver at 15 9-124 to 
1; say 15 1-14 to 1, for the sake of simplicity; 1 oz. of gold 
was sold for 15 1-14 oz. of silver, and vice versa. Accordingly, 
that ratio was established by law, 1 oz. of gold being coined 
into the nominal sum of 3/. 17^. lO^c?. and 15 1-14 oz. of sil- 
ver into the same sum. Thus, the government attempted per- 
manently to fix a ratio, that is, in the nature of things, perpetu- 
ally varying. The demand for silver gradually increased; its 
use for plate and other domestic purposes became more gene- 
ral; the India trade received an additional stimulus, and took 
off silver in preference to gold, for this reason, that the rela- 
tive value of silver to gold is higher in the East than in Europe; 
so that, by the end of the last century, the ratio of these metals 
one to the other in England became about 14^ to 1 only; and 
the same quantity of silver, that was coined into 3/. 17*. 
1 04 c?., would then sell in the market for 4/. in gold There 
was thus a profit on melting down the silver, and a loss on 
payments in that metal; for which reason, thenceforward, un- 
til the parliamentary suspension of specie payments by the 
Bank of England in 1797, paj^ments of course were commonly 
made in gold. 

Since 1797, all payments have been made in paper. But, 
if England shall return to a metallic currency, framed upon 
the former monetary principles and regulations, it is probable, 
that payments will be made in silver instead of gold, as before 
the suspension; for gold has risen in relative price to silver in 
the English market, probably in consequence of the large ex- 
port of specie for commercial purposes, and greater difficulty 
of prevention in gold than in silver. Gold bullion in the En- 
glish market is now to silver bullion in the ratio of about 1 to 
15i, although the mint ratio is still 1 to 15 1-14. A payment 
in gold instead of silver would, therefore, be a gratuitous sa- 
crifice of the difference between 15 1-14 and 15^. 

Hence may be drawn this conclusion; that it is impossible 
in practice to assign any fi?:ed ratio of exchangeable value to 
commodities, whose ratio is for ever fluctuating, and, therefore, 
that gold and silver must be left to find their own mutual level, 



CHAP. XXI. ON PRODUCTION. 2C3 

in the transactions in which mankind may think proper to 
employ them.* 

The above remarks upon the relative value of gold and sil- 
ver are equally applicable to silver and copper, as well as to 
all other metals whatever. There is no more propriety in de- 
claring, that the copper contained in twenty sous shall be 
worth the silver contained in a livre tournois, than in enacting, 
that the silver contained in 24 liv. tournois shall be worth the 
gold in a louis d'or. However, little mischief has been occa- 
sioned by fixing the ratio of copper to the precious metals, be- 
cause the law does not authorize the payment of sums stipu- 
lated in livres tournois andjrancs in either copper or the pre- 
cious metals indifferently; so that, in reality, the only metal 
money recognised by law as le^al tender, for sums above the 
value of the lowest denomination of silver coin, is silver or 
gold. 



SECTION IX. 



Of Money as it ought to be.. 

From all that has been said in the preceding sections may 
be inferred my opinion of what money ought to be. 

The precious metals are so well adapted for the purposes of 
money, as to have gained a preference almost universal; and, 
as no other material has so many recommendations, no change 
in this particular is desirable. 

So also of their division into equal and portable particles. 
They may very properly be coined into pieces of equal weight 
and quality, as has heretofore been the practice among most 
civilized nations. 

Nor can there be any better contrivance, than the giving 
them such an impression, as shall certify the weight and quali- 
ty; or than the exclusive reservation to government of the 

* The relative position of gold and silver, in respect to value, is by no 
means determined by the respective supply of each from the mines. Hum- 
boldt states, in his Essai Pol. sur la Nouvd'le Espagne, torn. iv. p_. 222, oct. 
that silver is produced from the mines of America and Europe jointly, in 
the ratio to gold, of 45 to 1. Now the ratio of their value, instead of being- 
45 to 1, is only 

In Mexico - - 15 5-8 - - - to 1 

— France - - 15 1-2 - ... 1 

— China from 12 to 13 - - 1 

— Japan — 8 - 9 - - 1 

The difference is probably owing to the superior utility and demand of sil- 
ver for the purposes of plate, &c. as well as of money. It would seem, that 
this cause operates more forcibly in the East than in the West; for gold jew- 
ellery is relatively cheaper there than in our part of the world. 



204 ON PRODUCTION. book i. 

right of impressing such certificate, and, consequently, of coin- 
ing mony, for the certificate of a number of coiners, all work- 
ing together and in competition one with the other, could never 
give an equal security. 

Thus far, then, and no further, should the public authority 
intermeddle with the business of money. 

The value of a piece of silver is arbitrary, and is established 
by a kind of mutual accord on every act of dealing between 
one individual and another, or between the government and 
an individual. Why, therefore, attempt to fix its value before- 
hand? since, after all, the fixation must be imaginary, and can 
never answer any practical purpose, in the money transac- 
tions of mankind. Why give a denomination to this fixed, 
imaginary value, which money can never possess? For what 
is a dollar, a ducat, a florin, a pound sterling, or a franc; what, 
but a certain weight of gold or silver of a certain established 
standard of quality? And, if this be all, why give these re- 
spective portions of bullion any other name, than the natural 
one of their weight and quality? 

Five grammes of silver, says the law, shall be equivalent 
to z. franc: which is just as much as to say, 5 grammes oi %\\- 
ver is equivalent to 5 gram^mes of silver. For the only idea, 
presented to the mind by the word franc, is that of the 5 
grammes of silver it contains. Do wheat, chocolate, or wax, 
change their name by the mere act of apportioning their 
weight? A pound weight of bread, chocolate, or of wax can- 
dles, is still called a pound weight of bread, chocolate or wax 
candles. Why, then, should not a piece of silver, weighing 5 
gramm.es, go by its natural appellation? Why not call it simply 
5 grammes of silver? 

This slight alteration, verbal, critical, and nugatory as it 
may seem, is of immense practical consequence. Were it 
once admitted, it would be no longer possible to stipulate in 
nominal value: every bargain would be a barter of one sub- 
stantial commodity for another, of a given quantity of silver 
for a given quantity of grain, or butcher's meat, of cloth, &c. 
&c. Whenever a contract for a long prospective period was 
entered into, its violation could not escape detection: a person 
taking an obligation to pay a given quantit}^ of fine silver, at a 
day certain, would know precisely how much silver he would 
have to receive at the period assigned, provided his debtor 
continued solvent. 

The whole monetary system would thenceforth fall to the 
ground; a system replete with fraud, injustice, and robbery, 
and moreover so complicated, as rarely to be thoroughly un- 
derstood, even by those who make it their profession. It 
would ever after be impossible to effect an adulteration of the 
coin, except by issuing counterfeit money; or to compound 
with creditors, without an open, avowed bankruptcy. The 
coinage of money would become a matter of perfect simplici- 
ty, a mere branch of metallurgy. 



CHAP. xxT. ON PRODUCTION. 205 

The denominations of weight, in common use before the in- 
troduction into France of the metrical system, that is to say, 
the once, gros, grain, had the advantage of conveying the no- 
tion of portions of weight, thathad remained stationary for many 
ages, and were applicable to all commodities whatever, with- 
out distinction: so that the once could not be altered for the 
precious metals, without altering it at the same time for sugar, 
honey, and all commodities sold by the weight: but, in this 

f articular, the new metrical system is infinitely preferable, 
t is founded upon a basis provided by nature, which must 
remain invariable as long as our world shall last. The gramme 
is the weight of a cubic centimetre of water: the centimetre is 
the hundredth part of a metre, and the metre is ^^,^i^,__^ 
part of the arc formed by the circumference of the earth, from 
the pole to the equator. The term gramme may be changed, 
but no human power can change that portion of weight actu- 
ally designated by the term gram,me; and whoever shall con- 
tract to pay at a future date a quantity of silver, equal to 100 
gramTues weight, can never pay a less quantity of silver, with- 
out a manifest breach of faith, whatever arbitrary measures of 
power may intervene. 

The power of a government to facilitate the transactions of 
exchange and contract, wherein the commodity, money, is 
employed, consists in dividing the metal into different pieces of 
one or more gramm^es or centigram,7nes, in such manner, as 
to admit of instant calculation of the number of gramm,es a 
given payment will require. 

It has been ascertained by the experiments of the Academy 
of Sciences, that gold and silver resist friction better with a 
slight mixture of alloy, than in a pure state. People versed 
in these matters say, besides, that this complete purity can not 
be obtained, without a very expensive chemical process: that 
would add greatly to the expense of coinage. There is no 
sort of objection to mixing alloy, provided the proportion be 
signified by the impression, which should be nothing more 
than a mere certificate of the weight and quality of the metal. 

I make no mention of the \.^xvcy% franc, decitne, centiTue, be- 
cause those names should never have been given to the coin, 
being, in fact, names indicative of nothing whatever. The 
laws of France, instead of enacting that pieces, calXedi francs, 
shall be coined, having the weight of 5 gram,^nes of silver, 
should have simply ordered a coinage of pieces of 5 grammes. 
In which case, a letter of credit or bill of exchange, instead of 
being drawn for, say 400yr., would be for 2000 grammes of 
silver of the standai'd of 9-10 silver to 1-10 alloy; or if prefer- 
red, for 130 gra-jnmes of gold of the same degree of purity; 
and the payment would be the most simple imaginable; for 
the pieces of coin, gold and silver, would be all fractions or 
multiples of the gramme of metal of that standard. 

However, it would still be necessary to enact, that no sum 
stipulated in grammes of silver or gold should be payable 



206 ON PRODUCTION. book i. 

otherwise than in coin, unless under a special proviso; else, 
the debtor might discharge all claims in Dullion of somewhat 
less value than coin. This is obviously matter of" practical ar- 
rangement; the principle requiring nothing, but that the ob- 
ligation, after mentioning the metal and standard, should spe- 
cify on the face of it, whether payable in national coin or bul- 
lion. The only object of such a law would be, to save the con- 
tinual necessity of enumerating many particulars, that would 
thenceforward be implied. 

A government should never coin the bullion of private per- 
sons, without charging the profit, as well as the cost, of the 
operation. The monopoly of coinage will enable it to make 
this profit somewhat high: but it should be varied according 
to the state of metallurgic science, and the demand for circu- 
lation. Whenever the state has little to coin on its own ac- 
count, it had better lower its charges, than let its machinery and 
workmen remain idle; and, on the other hand, raise its charges, 
when the influx of bullion is rapid and superabundant. And 
in this, it would but intimate other manufacturers. As to the 
bullion bought and coined by government on its own account, 
the coin issued would reimburse the charges, and yield a pro- 
fit by its superior value in exchange; as I nave endeavoured to 
prove above in Section 4. 

To the marks indicative of weight and quality, should of 
course be superadded every device to prevent counterfeits. 

1 have not occupied my reader's time with any observations 
on the relative proportion of gold to silver; nor was there any 
occasion to do so. Having avoided any specification of their 
value under any particular denomination, I shall pay no more 
attention to the alternating variations of that value, than to the 
fluctuations of the relative value of both to all other commodi- 
ties. This must be left to regulate itself; for any attempt to fix 
it would be vain. With regard to obligations, they would 
be dischargeable in the terms of contract: an undertaking to 
pay 100 grammes of silver would be discharged by the trans- 
fer of 100 grammes of silver; unless, at the time of payment, 
by mutual consent of the contracting parties, any other metal, 
or goods at a rate agreed on, should be substituted in prefer- 
ence. 

It would be difficult to calculate the advantage, that would 
accrue to industry in all its branches, from so simple an ar- 
rangement; but some notion of it may be obtained, by consi-, 
dering the mischiefs that have resulted from a contrary sys- 
tem. Not only has the relative pecuniary position of indivi- 
duals been repeatedly overset, and the best planned and most 
beneficial productive enterprises altogether thwarted and ren- 
dered abortive; but the interests of the public, as well as of 
private persons, are, almost every where, subject to daily and 
hourly aggression. 

A medium, composed entirely of either silver or gold, bear- 
ing a certificate, pretending to none but its real intrinsic value, 



CMAP. XXI. ON PRODUCTION. 207 

and, consequently, exempt from the caprice of legislation, 
would hold out such advanta^jes to every department of com- 
merce, and to every class of society, that it could not fail to 
obtain currency even in foreign countries.. Thus, the nation, 
that should issue it, would become a general manufacturer of 
money for foreign consumption, and might derive from that 
branch of manufacture no inconsiderable revenue. We read 
in Le Blanc,* that a particular coin issued by St. Louis, and 
called agnels cfor, from the figure of a lamb impressed upon 
them, was in great request even among foreigners, and a fa- 
vourite money in commercial dealings, for the sole reason that 
it invariably contained the same quantity of gold, from the 
reign of St. Louis to that of Charles VI. 

Should France be so fortunate as to make this experiment, 
I hope none of those who do me the honour to read this work, 
will feel any regret at the drain of its money, to use the ex- 
pression of certain persons, who neither know nor choose to 
learn any thing of the matter. It is quite clear, that neither 
silver nor gold coin will go out of the kingdom, withoutleaving 
behind a value fully equivalent to the metal and the fashion it 
bears. The trade and manufacture of jewellery for export are 
considered lucrative to the nation; yei, they occasion an out- 
going of the precious metals. The beauty of the form and 
pattern adds, to be sure, greatly to the price of the metal thus 
exported; but the accuracy of assay and weight, and, above 
all things, the maintenance of the coin at an invariable stand- 
ard of weight and quality, would be an equal recommendation, 
and would undoubtedly be just as well paid for. 

Should it be objected, that the same system was adopted by 
Charlemagne, when he called a pound of silver a livre, and 
that notwithstanding the coin has been since repeatedly de- 
teriorated, until, at last, what was called a livre, contained, in 
fact, but 96 gr., I answer: — 

1. That, neither in the time of Charlemagne, nor at any sub- 
sequent period, has there ever been a coin containing a pound 
of silver; that the livre has always been a money of account, 
an ideal measure. The silver coin of Charlemagne and his 
successors, consisted oisols of silver, the sol being a fractional 
part of the pound weight. 

2. None of the coin has ever borne on the face of it the in- 
dication of the weight of metal it contained. There are extant 
in the collections of medals many pieces coined in the reign 
of Charlemagne. The impression was nothing more than the 
name of the monarch, with the occasional addition of the name 
of the town where the coin was struck, executed in very rude 
characters; which, indeed, is not to be wondered at, consider- 
ing that the monarch, though an avowed patron of literature, 
was himself unable to write. 

3. The coin was yet further from bearing any thing indica- 

* Traite Hisi, des ihnnaks dt la Francfi J'rokgom. p. 4. 



208 ON PRODUCTION. book i, 

live of the standard quality of the metal, and this was the 
thing first encroached upon; for the sol in the reign of Philip 
I. still contained the same fractional weight of the livre as ori- 
ginally; but it was made up of 8 parts of silver to 4 copper, in- 
stead of containing, as under the second race of monarchs, 12 
oz. of fine silver, which was the then weight of the livre. 

The very singular state of the actual money of England, and 
the extraordinary circumstances, that have occurred in respect 
to it since the first editions of this work appeared, have given 
a decisive proof, that the mere want of an agent of circulation, 
or, of the commodity, money, is sufficient to support a paper- 
money absolutely destitute of security for its convertibility at 
a high rate of value, or even at a par with metal, provided it 
be limited in amount to the actual demand of circulation,* — 
Whence some English writers of great intelligence in this 
branch of science have been led to conclude, that, since the 
purposes of money call into action none of the physical and 
metallic properties of its material, some substance less costly 
than the precious metals; paper, for instance, may be employed 
in them with good effect, if due attention be paid to keep the 
amount of the paper within the demands of circulation. The 
celebrated Ricardo has, with this object, proposed an ingenious 
plan, making the Bank or corporate body, invested with the 
privilege of issuing the paper-money, liable to pay in bullion 
for its notes on demand. A note, actually convertible on de- 
mand into so much gold or silver bullion, can not fall in value 
below the value of the bullion it purports to represent; and, on 
the other hand, so long as the issues of the paper do not ex- 
ceed the wants of circulation, the holder will have no induce- 
ment to present it for conversion; because the bullion, when 
obtained, would not answer the purposes of circulation. If a 
casual interruption of confi.dence in the paper should bring it 
for conversion in too large quantity, the paper remaining in 
circulation must rise in value, in the absence of any other cir- 
culating medium, and there would be an inducement to bring 
bullion to the bank to be converted into paper.t 

• Vide our aiitbor's pamphlet, entitled, dc VAngkterre, et des Anglais, 
1815, 3d edition, p. 50. et seq. 

■\ Proposals for an economical and secure Currency, by D. Ricardo, 1816. 
It seems, the British legislature has since adopted the expedient of that 
writer, in 1819. The experiment is yet in progress; and whatever be its 
ultimate result, it must needs advance the interests of the science. 



CHAP. XXI. ON PRODUCTION. 209 



SECTION X. 



Of a Copper and base Metal'* Coinage. 

The copper coin and that of base metal, are not, strictly 
speaking, money ; for debts can not be legally tendered in this 
coin, except such fractional sums, as are too minute to be paid 
in gold or silver. Gold and silver are the only metal-money 
of almost all commercial nations. Copper coin is a kind of 
transferable security, a sign or representative of a quantity of 
silver too diminutive to be worth the coining; and, as such, 
the government, that issues it, should always exchange it on 
demand for silver, when tendered to an amount equal to the 
smallest piece of silver coin. Otherwise, there is no security 
against the issue of an excess beyond the demand of circula- 
tion. 

Whenever there is such an excess, the holders, finding the 
base metal less advantageous than the gold and silver it repre- 
sents but does not equal in value, would strive to get rid of it 
in every way; whether by selling to a loss, or by employing 
it in preference to pay for low-priced articles, which would 
consequently rise in nominal price; or by proffering it to their 
creditors in larger quantity, than enough to make up the frac- 
tional parts of sums in account. The government, having an 
interest in preventing its being at a discount, because that 
would reduce the profit upon all future issues, generally au- 
thorizes the latter expedient. 

Before 1808, for instance, it was a legal tender at Paris to 
the extent of 1-40 of every sum due; which had exactly the 
same effect, as a partial debasement of the national currency. 
Every body knew, when a bargain was concluded, that he was 
liable to be paid in proportion of 1-40 copper or brass metal, 
to 39-40 silver, and made his calculation accordingly, on 
terms proportionably higher, than if no such regulation had 
existed. It is with this particular, precisely as with the weight 
and standard of the silver coin; sellers do not stop to weigh 
and assay every piece they receive; but the dealers in gold and 
silver, and those connected with the trade, are perpetually on 
the watch to compare the intrinsic, with the current, value of 
the coin; and, whenever their values differ, they have an op- 
portunity of gain; their operations to obtain which, have a 
constant tendency to put the current value of the coin on a 
level with its real value. 

* Billon, a compound of copper and silver, containing 1-4 or 1-2 only of 
the latter, and the residue of the former. It is used in the fractional coin- 
age of France, to supersede the employment of copper in large quantities. 
34 



310 ON PRODUCTION. book i. 

The obligation to receive copper in any considerable pro- 
portion, has, in like manner, an influence upon the exchange 
with foreigners. There is no question, that a letter of ex- 
change on Paris payable m francs is sold cheaper at Amster- 
dam, in consequence of the liability to receive part payment 
in copper or base metal; just as it would be, if t\\e franc were 
made to contain less of silver and more of alloy. 

Yet, it is to be observed, that, on the whole, the value of 
money is not so much affected by this circumstance, as by the 
mixture of alloy; for the alloy has positively no value what- 
ever, for the reasons above stated;* whereas, the copper 
money, payable in the ratio of 1-40, had a small intrinsic 
value, though inferior to the sum in silver, it was made to pass 
for: had it been of equal value, there would have been no oc- 
casion for an express law to give it currency. 

As long as a government gives silver on demand for the 
copper and base metal regularly presented, it can with little 
inconvenience give them very trifling intrinsic value; the de- 
mand for circulation will always absorb a very large quantity, 
and they will maintain their value as fully, as if really worth 
the fractional silver represented; on exactly the same princi- 
ple, as a bank-note passes current, and that too for years to- 
gether, without any intrinsic value, just as well as if really 
worth the sum it purports on the face of it to contain. In this 
manner, such a coinage can be made more profitable to the 
government than by any compulsion to receive it in part pay- 
ment; and the value of the legal coin will suffer no deprecia- 
tion. The only danger is that of counterfeits, which there is 
the stronger stimulus for avarice to fabricate, in proportion as 
the difference between the intrinsic, and the current, value 
grows wider. 

The last king of Sardinia's predecessor, in attempting to 
withdraw from circulation a base currency, issued by his 
father in a period of calamity, had more than thrice the quan- 
tity originally issued by the government thrown upon his 
hands. The sam.e thing happened to the king of Prussia, when, 
under the assumed name of the Jew Ephraim, he withdrew 
the base coin he had compelled the Saxons to receive, during 
his distresses in the seven years' war;t and for exactly the 
same reason. Counterfeits of the coin are usually executed 
beyond the national frontier. In England, it was attempted 
to remedy this evil in the year 1799, by a coinage of half- 
pence with a very fine impression, and executed with an at- 
tention and perfection, that counterfeiters can rarely bestow. 

• Supra, p. 170. 

■}■ Mongez, Consider, sur les Monnaies, p. 31. 



CHAP. XXI. ON PRODUCTION. 211 



SECTION XL 



Of the, preferable Form of Coined Money. 

The wear of the coin by friction is proportionate to the ex- 
tent of its surface. Of two pieces of coin of equal weight and 
quality, that will suffer least from continual use, which offers 
the least surface to the friction. 

The spherical or globular form is. consequently, preferable 
in this respect, as least liable to wear; but it has been rejected 
on account of its inconvenience. 

Next to this form, the cylinder, of equal depth and breadth 
is that, which exposes the smallest surface; but this is fully as 
inconvenient as the other; the form of a very flat cylinder has, 
consequently, been very generally adopted. However, from 
what has been already said, it will appear, that the less it is 
flattened the better; and that the coin should rather be made 
thick than broad. 

With regard to the impression, the chief requisites are, 1. 
that it specify the weight and quality of the piece; 2. that it 
be very distinct, and intelligible to the meanest capacity; 3. 
that the die oppose all possible difficulties to the defacing or 
reducing of the coin; that is to say, that it be so contrived, that 
neither the ordinary wear nor fraudulent practices should be 
able to reduce the weight without destroying the impression. 
The last coined English half pence have a cord, not project- 
ing, but indented in the thickness of the circumference, and 
occupying the central part of the circumference only, so as to 
make it liable neither to clipping nor wear. This mode might 
be adopted in the silver and gold coinage with certainty of 
success; and it is of much more consequence to prevent their 
deterioration. 

When the impression is in basso relievo, it should project 
but little, for the convenience of piling the pieces ond upon 
another, as well as to reduce the friction. On the same ac- 
count, a projecting impression should not be too sharp on the 
surface, or it would wear away too rapidly. With a view to 
prevent this, experiments have been made of dies executed in 
alto relievo; but it was found, that the coin was thereby too 
much weakened, and liable to be bent or broken. This plan, 
however, might possibly be practised with advantage, if the 
pieces were secured by greater thickness. 

The same motiveof giving to the coin the least possible sur- 
face, should induce the government to issue as large pieces as 
convenience will admit; for the more pieces there are, the 
greater is the surface exposed to friction. No more small 



212 ON PRODUCTION. book?. 

pieces of coin should be issued, than just enough to transact 
exchanges of small amount, and to pay fractional sums. All 
large sums should be paid in large pieces of coin. 



SECTION xir. 

Of the Party, on whom the Loss oj the Coin by Wear 
should properly fall. 

It has been a question, who ought to defray the loss, con- 
sequent upon the friction or wear of the coin? In strict justice, 
the person who had made use of it, in like manner as the wearer 
of any other commodity. A man, that re-sells a coat after 
having worn it, sells it for less than he gave for it when new. 
So a man, that sells a crown piece for some other commodity, 
should sell it for less than he gave; that is to say, should re- 
ceive a smaller quantity of goods than he obtained it with. 

But the portion of a specific coin, consumed in its passage 
through the hands of any one honest person, is less than almost 
any assignable value. It may circulate for many years to- 
gether, without any sensible diminution of its weight; and, 
when the diminution is discovered, it ma)^ be impossible to 
tell, by which of the innumerable holders it was effected. I 
am aware, that each of them has imperceptibly shared the de- 
preciation of its exchangeable value, occasioned by the wear^ 
that the quantity of goods it would purchase has declined by 
an insensible gradation; that, although the depreciation has 
been imperceptibly progressive, it becomes at last very mani- 
fest; and, that worn money will not be taken at par with new 
coin. Consequently, I think, that, if an entire class of coin 
were gradually so reduced, as to make a recoinage necessary, 
its holders could not in reason expect that their reduced com 
should be exchanged for new at par, piece for piece. Their 
money should be received, even by the government, at no 
more than its real value; the silver it contains is less in quan- 
tity than at the first issue; and it has been received by the 
holders at a lower rate of value; they have given for it less 
goods, than the}- would have done in the outset. 

In fact, this is the course that rigid justice would prescribe; 
but there are two reasons, why it" should not be strictly en- 
forced. 

1. Each individual piece of coin is not, if I maybe allowed 
the expression, a substantive article of commerce. Its ex- 
changeable value is calculated, not according to the weight and 
quality of the identical piece in question, but according to the 
average weight and quality of the coin in large quantities, as 
ascertained by common experience. A crown piece of an 



CHAP. XXI. ON PRODUCTION. 213 

earlier date, and more worn, is yet freely received in exchange 
for one more new and perfect; the difference is sunk in the 
average. The mint issues new pieces every year of the full 
weight and standard, which prevents the coin from declining 
sensibly in value, in consequence of the friction, even for many 
years after its issue. 

This circumstance is illustrated by the fact, of the French 
pieces of 12 and 24 sous passing current at par with the crown- 
piece of 6 livres without any difficult}^; although the same nomi- 
nal sum, in the shape of the worn pieces of 12 and 24^., con- 
tained in reality about \ less silver than the crown-piece. 

The subsequent law, which prohibited their being taken by 
the public receivers or private persons at more than 10 and 2Q 
sous, rated them at their full intrinsic value, but below the 
rate, at which the then holders had taken them. For their 
value had been previously kept up to 12 and 24 sous in spite 
of the wear, by reason of their passing current at par with the 
crown-piece. Thus, the last holder was saddled with the en- 
tire loss of a friction, to which the innumerable hands they 
had passed through had all contributed. 

2. The impression is equally effectual in giving currency at 
the last as at the first, although it becomes in course of time 
scarcely, if at all visible; witness the shillings of England. 
The coin derives, as above explained, a certain degree of value 
from the mere impression, which value has been admitted and 
recognised throughout, until it reaches the ultimate holder, 
who has in consequence received it at a higher rate, than he 
would a piece of blank bullion of equal weight. To saddle 
him with the difference, would be to make him lose the whole 
value of the impression, although it has been equally servicea- 
ble to perhaps a million of others. 

On these grounds, I am inclined to think, the loss by wear, 
and that of the impression, should be borne by the community 
at large; that is to say, by the public purse: for the whole so- 
ciety derives the benefit of the money; and it is impossible ta 
tax each individual, in the precise proportion of the use he has 
made of it. 

To conclude; every individual, that carries bullion to the 
mint to be coined, may be fairly charged the expenses of the 
process, and, if thought advisable, the full monopoly-profit. 
Thus far there is no harm done: his bullion is increased in 
value to the full amount of what he has been charged by the 
mint; otherwise, he would never have carried it thither. At 
the same time, I am of opinion, that the mint should always 
give a new piece in exchange for an old one on demand: which 
need nowise interfere with the utmost possible precautions 
against the clipping and debasing of the coin. The mint should 
refuse such pieces, as have lost certain parts of the impression, 
which are not liable to fair and unavoidable wear; and the loss 
in that case should fall on the individual, careless enough to 
take a piece thus palpably deficient. The promptitude, with 



214 ON PRODUCTION. book i. 

which the public would take care to carry injured or suspicious 
pieces to the mint, would greatly facilitate the detection of 
fraudulent practices. 

With diligence on the part of the executive, the loss arising 
from this source might be reduced to a mere trifle, and the 
system of national money would be materially improved, as 
well as the foreign exchange. 



CHAPTER XXII. 



OP SIGNS OR REPRESENTATIVES OP MONEY. 



SECTION I. 



Of Bills of Exchange and Letters of Credit. 

A BILL of exchange, a promissory note or check, and a let- 
ler of credit, are written obligations to pay, or cause to be 
paid, a sum of money, either at a future time, or at a different 
place. 

The right conveyed by the assignment of these engage- 
ments, though not capable of being enforced immediately, or 
elsewhere than at the stipulated place, yet gives them an 
actual value, greater or less, according to circumstances. — 
Thus, a bill of exchange for \QOfr., payable at Paris at two 
months date, may be negotiated or sold, at pleasure, at the 
rate of, say 99 /r.; while a letter of credit of like amount, paya- 
ble at Marseilles in the same space of time, will, perhaps, be 
worth at Paris but dSfr. 

These engagements may be used as money in all transac- 
tions of purchase, as soon as they are invested with actual pre- 
sent value, by the prospect of their future value; indeed, most 
of the greater operations of commerce are effected through 
the medium of these securities. 

Sometimes, the circumstance of a bill of exchange being 
payable at another place will increase, instead of diminishing, 
its value; but this depends upon the state of commerce for the 
time being. If the merchants of Paris have large payments 
to make to those of London, they will readily give more mo- 
ney at Paris for a bill upon London, than it will produce to the 
holder at the latter place. Thus, although the pound sterling 
contain precisely as much silver as 24 fr. 74 cents^ they will. 



CHAP. XXII. ON PRODUCTION. 215 

perhaps, give at Paris 25 fr., more or less, for every pound 
sterling payable in London.* 

This is what is called the course of exchange, being, in 
fact, a mere specification of the quantity of precious metal 
people will consent to give, for the transfer of a right to re- 
ceive a given quantity of the same metal at any other speci- 
fied place. The particular locality of the metal reduces or 
increases its value, in relation to the same metal situated else- 
where. 

The exchange is said to be in favour of any country, France 
for example, whenever less of the precious metal is there given 
for, than will be produced by, a bill of exchange upon another 
country; or whenever in the foreign country more of the pre- 
cious metal is given for a bill of exchange on France, than it 
will there produce to the holder. The difference is never 
very considerable, and can not exceed the charge of transport- 
ing the precious metal itself; for, if a foreigner, who wants to 
make a payment at Paris, can remit the sum in specie at less 
expense than he could be put to by the existing course of ex- 
change, he would undoubtedly remit in specie, t 

It has been imagined by some people, that all debts to fo- 
reigners can be paid by bills of exchange; and measures have 
been frequently suggested, and sometimes adopted, for the en- 
couragment of this fictitious mode of payment. But this is a 
mere delusion. A bill of exchange has no intrinsic value; it 
can only be drawn upon any place for a sum actually due at 
that place; and no sum can be there actually due, unless an 
equal value, in some shape or other, has been remitted thither: 
the imports of a nation can only be paid by the national ex- 
port; and vice versa. Bills of exchange are a mere represen- 
tative of sums due; in other words, the merchants of one coun- 
try can draw bills on those of another for no more, than the 
full amount of the goods of every description, silver and gold 
included, which they may have sent thither directly or indi- 
rectly. If one country, says France, have remitted to another 
country, Germany perhaps, merchandise to the value of 
10,000, 000 yr., and the latter have remitted to the former to 
the amount of 1 2,000,000 y^., France can pay as much as ten 
millions by the means of bills of exchange, representing the 
value of her export; but the remaining two millions can not be 
so discharged directly, although possibly they may by bills of 
exchange upon a third country, Italy, for instance, whither she 
may have exported goods to that extent. 

* If the credit on London be payable in paper-money instead of specie, 
the course of exchange with Paris of the pound sterling, may, perhaps, fall 
to 21 fr. 18 fr. or even less, in proportion to the discredit of the paper of 
England. 

f In that expense I include the charge and risk of transport and of smug- 
gling also, if the export of specie be prohibited; which latter is propor- 
tionate to the difficulty of the operation. The risks are estimated in the 
rate of insurance. 



216 ON PRODUCTION. book i. 

There is, indeed, a species of bills, called by commercial 
men, accommodation-paper, which actually represents no value 
whatever. A merchant at Paris, in league with another of 
Hamburgh, draws bills upon his correspondent, which the lat- 
ter pays or provides for, by re-drawing and negociating or 
selling bills at Hamburgh upon his correspondent at Paris. — 
So long as these bills are in possession of any third person, 
that third person has advanced their value. The negociation 
of such accommodation-paper is an expedient for borrow- 
ing, and a very expensive one; for it entails the loss of the 
banker's commission, brokerage and other incidental charges, 
over and above the discount for the time the bills have to run. 
Paper of this description can never wipe out the debt, that one 
nation owes another; for the bills drawn on one side balance 
and extinguish those on the other. The Hamburgh bills will 
naturally counterpoise those of Paris, being in fact drawn to 
meet them; the second set destroys the first, and the result is 
absolute nullity. 

Thus, it is evident, that one nation can not otherwise dis- 
charge its debts to another, than by remittance of actual value 
in goods or commodities, in which term I comprise the pre- 
cious metals, amongst others, to the full amount of what it has 
received or owes. If the actual values directly remitted thither 
are insufficient to balance the receipts or imports thence, 
it may remit to a third nation, and thence transport produce 
enough to make up the deficit. How does France pay Russia 
for the hemp and timber for ship-building imported thence? — 
By remittance of wines, brandies, silks, not merely to Rus- 
sia, but, likewise, to Hamburgh and Amsterdam, whence again 
a remittance of colonial and other commercial produce is for- 
warded to Russia. 

Governments have commonly made it their object to con- 
trive that the precious metals shall form the largest possible 
portion of the national import from, and the least possible por- 
tion of the national export to, foreign countries. I have al- 
ready taken occasion to remark, with regard to what is im- 
properly called the balance of trade, that, if the national mer- 
chant finds the precious metals a more profitable foreign re- 
mittance than another commodity, it is, likewise, the interest 
of the state to remit in that form; for the state can only gain 
and lose in the persons of its individual subjects; and, in the 
matter of foreign commerce, whatever is best for the individu- 
als in the aggregate, is best for the state also. * Thus, when 
impediments are thrown in the way of the export of the pre- 
cious metals by individuals, the effect is to compel an export 
in some other shape, less advantageous to the individual and 
the public too. 

* This position applies to foreign commerce only; the monopoly-profits 
of individuals in the home-market are not entirely national gains. In inter- 
nal dealings, the sum of the utility obtained is all that is acquired by the 
community. 



CHAP. XXII. ON PRODUCTION. 217 



SECTION II. 



Of Banks of Deposit. 

The constant intercourse between a small state and its neigh- 
bours occasions a perpetual influx of foreign coin. For, al- 
though the small state may have a national coinage of its 
own, yet, the frequent necessity of taking the foreign instead 
of the national coin in payment, requires the fixation of the 
ratio of their relative value, in the current transactions of 
business. 

There are many mischiefs attending the use of foreign coin, 
arising chiefly from the great variation of weight and quality. 
It is often extremely old, worn, and defaced; not having par- 
ticipated in the general re-coinage of the nation that issued it, 
where, perhaps, it is no longer current; all which circumstan- 
ces, though considered in settling its current relative value to 
the local coin, yet, do not quite reduce it to the natural level 
of depreciation. 

Bills drawn from abroad upon such a state, being payable 
in the coin thus rendered current, are, in consequence, nego- 
ciated abroad at some loss; and those drawn upon foreign 
countries, and, consequently, payable in coin of a more steady 
and intelligible value, are negociated in the smaller state at a 
premium, because the holder of them must have purchased 
them in a depreciated currency. In short, the foreign coin 
is always exchanged for the local currency to a loss.(«) 

The remedy devised by states of this inferior class is the 
subject of the present section. They established banks,* 
where private merchants could lodge any amount of local na- 
tional coin, of bullion, or of foreign coin, reckoned by the 
bank as bullion; and the amount, so lodged, was entered as so 

* Venice, Genoa, Amsterdam, and Hamburgh had each an establishment 
of this nature. All have been swept away by the torrent of the revolu- 
tionary war; but there may be some use in examining the nature of institu- 
tions, that may some day or other be re-established. Besides, the investi- 
gation will throw light upon the history of the communities that established 
them, and of commerce in general. At any rate, it was necessary to enu- 
merate all the various expedients that have been resorted to as substitutes 
for money. 



(a) Why, our author has not told us; but it may be infen-ed, because the 
local currency is made up of foreign and domestic coin. This is by no means 
a necessary consequence; for the local authority may have left the con- 
tracts of individuals quite free; and their paper-dealings may be expressed 
in any coin that may be preferred. T, 
35 



218 ON PRODUCTION. book i. 

much money of the legal national standard of weight and 
quality. At the same time the bank opened an account with 
each merchant making such deposit, giving him credit for the 
amount of the deposit. Whenever a merchant wanted to make 
a payment, there was no occasion to touch the deposit at all; 
it was sufficient to transfer the sum required, from the credit 
of the party paying, to that of the party receiving. Thus, 
values could be transferred continually by a mere transfer in 
the books of the bank. The whole operation was conducted 
without any actual transfer of specie; the original deposit, 
which was entered at the real intrinsic value at the time of 
making it, remained as security for the credit transferred from 
one person to another: and the specie, so lodged with the 
bank, was exempt from any reduction of value by wear, 
fraud, or even legislative enactment. 

The money still remaing in circulation, wherever it was ex- 
changed for the bank deposits, that is to say, for entries in the 
bank books, necessarily lost in proportion to the reduction of 
its intrinsic value. And this loss occasioned the difference of 
value, or agio at Amsterdam, between bank money and circu- 
lating money, which was on the average from 3 to 4 per cent, 
in favour of the former. 

It will easily be imagined, that bills of exchange, payable in 
a currency so little liable to injury or fluctuation, must be ne- 
gotiable on better than ordinary terms. In fact, it was observ- 
able, that on the whole, the course of exchange was rather in 
favour of the countries, that paid in bank, and unfavourable to 
those that paid in circulating money only. 

The bank retained these deposits in perpetuity; for the re- 
issue would have been attended with serious loss; inasmuch as 
it would have been the same thing, as producing good money 
of the full original value, to be taken at par with the deterio- 
rated circulating coin, which passes current for — not its intrin- 
sic, but its average weight. The coin withdrawn from the 
bank would have been mixed up with the mass of circulation, 
and passed current at par with the rest. So that the withdraw- 
ing such deposits would have been a gratuitous sacrifice of the 
excess of value of bank above circulating money. 

This is the nature of banks of deposit; most of which com- 
bined other operations with the primary object of their insti- 
tution, but of them I shall speak elsewhere. They derived 
their profits, partly from a duty levied upon every transfer, 
and partly from operations incident to, and compatible with 
their institution; as, for example, advances made upon a de- 
posit of bullion. 

It is evident, that the inviolability of the deposit, confided 
to them, is essential to the success of such establishments. At 
Amsterdam, the four burgomasters, or municipal magistrates, 
were trustees for the creditors. Annually, on leaving office, 
they handed over the trust to their successors, who, after in- 
specting the account and verifying it by the registers of the 



CHAP. XXII. ON PRODUCTION. 219 

bank, bound themselves by oath, to surrender their charge in- 
violate to their successors in office. This trust was scrupu- 
lously executed from the first establishment of the bank in 1 609 
until 1672, when the forces of Louis XIV. penetrated as far 
as Utrecht. The deposits were then faithfully restored to the 
individuals. It would seem to have been afterwards less scru- 
pulously managed; for, when the French took possession of 
that capital in 1794, and called for a statement of the concern, 
it was found to be in advance of no less a sum than 10,624,793 
florins to the India company, and to the provinces of Holland 
and West-Friezeland, which were wholly unable to re-pay it. 
In a country governed by a power without control or respon- 
sibility, it may be expected, that such a deposit would have 
been still more exposed to violation, (a) 



SECTION III. 

Of Banks of Circulation or Discount, and of Bank-notes^ 
or Convertible Paper. 

There is another kind of bank, founded on totally different 
principles; consisting of associated capitalists, subscribing a 
capital in transferable shares, to be employed in various pro- 
fitable ways, but chiefly in the discount of bills of exchange, 
that is to say, the advance of the value of commercial paper 
not yet due, with the deduction of interest for the time it has 
to run, which is called, the discount. 

These companies, with a view to enlarge their capital and 
extend their business, commonly issue notes, purporting to bear 
a promise to pay to bearer at sight, the gold or silver specifi- 
ed on the face of them. Their security for the due discharge of 
these engagements is, the commercial paper held by the bank, 
and subscribed by individuals in solvent circumstances; for the 
company gives its notes in discount, or, what is the same thing, 
in purchase of this paper. 



{a) Public banks of deposit are now quite obsolete, and will probably 
never be revived. In fact they are clumsy expedients suited only to the 
early stag'es of commercial prosperity, and are liable to many inconveni- 
ences. They hold out a strong temptation to internal fraud and violence, 
as well as to external rapacity; they withdraw from active utility a larg-e 
portion of the precious metals, which mig-ht pei'haps be tui'ned to better 
account elsewhere; and they yield a degree of facility of circulation no- 
wise superior to what may be afforded by the common process of banking, 
except perhaps in security, and infinitely more expensive to the public 
and to individuals. They have accordingly been every where supplanted 
by banks of circulation, or by the expedient of an inconvertible paper- 
money. T. 



220 OJSr PRODUCTION. BOOK i. 

The private commercial paper, indeed, having a term to run 
before it falls due, can not be available in discharge of notes 
payable at sight; for which reason, every well-conducted bank 
of circulation confines its advances of cash, or notes payable 
in cash at sight, to the discount of bills at very short dates, 
and is careful to have always in hand a considerable amount 
of specie, probably a third, or as much as the half of the total 
amount of their circulating notes; and, even with all possible 
caution, it is at times greatly embarrassed, whenever a want 
of confidence in its solvency, or any untoward event, causes a 
sudden run upon the bank for cash. The bank of England 
has been obliged, on an occasion of this kind, to scrape toge- 
ther as many sixpences as it possibly could find, to gain time 
by the delay inseparable from payments in such a diminutive 
coin, until a part of the paper in its possession had fallen due. 
The discount bank of Paris, in the year 1788, being then un- 
der control of Government, had recourse to similar paltry ex- 
pedients. 

The profits of banks of circulation are very considerable; 
that portion of the notes, which is issued on the credit of pri- 
vate commercial paper, continues running at interest; for the 
advances have been made with the deduction of the discount. 
But the portion of the paper, issued on the credit of the specie 
in reserve, brings no profit; the interest lying dormant in the 
specie thus withdrawn from circulation. 

The banks of England and France make no advances to pri- 
vate persons, except on bills of exchange, and give no credit 
beyond the funds in hand. They indemnify themselves for 
the trouble of receiving and paying on account of individuals, 
by turning to account the floating balance left in their hands. 
These two establishments have, besides, undertaken the busi- 
ness of paying the interest upon the respective national debts, 
receiving an allowance for their trouble; furthermore, they oc- 
casionally make advances to the governments. 

From these various operations, they derive a great increase 
of their profits. The one last mentioned, however, is com- 
pletely at variance with the purposes of their establishment, 
as we shall presently find. The advances made to the old go- 
vernment of France by the then bank of discount, and those of 
the bank of England to the English government, compelled 
those bodies to apply to the respective legislatures to give their 
notes a compulsory circulation; thus destroying their funda- 
mental requisite of convertibility. The consequence has been, 
that the former of these banks went all to pieces, and the 
latter .... 

The establishment of several banks, for the issue of convert- 
ible notes, is more beneficial than the investment of any single 
body with the exclusive privilege; for the competition obliges 
each of them to court the public favour, by a rivalship of ac- 
commodation and solidity. 

Banks of circulation issue their notes either in the discount 



CHAP. XXII. ON PRODUCTION. 221 

of bills of exchange, that is to say, in giving their notes paya- 
ble at sight, and circulating like cash, in exchange for private 
paper, payable at a future date upon which interest is deduct- 
ed; which is the course pursued by the present bank of France, 
and by all the English banks, public and private; or else in 
lending at interest to solvent individuals, like those of Scot- 
land. Merchants of good credit are, in the latter wa)^, sup- 
plied with the sums necessary for their current expenses and 
payments, and each of them is thereby enabled to embark his 
whole capital in his commercial enterprises, without being 
obliged to reserve any part to meet the calls upon him in the 
course of business. The merchant of Paris or London must 
contrive matters, so as to have always on hand either in his 
private coffers or in the bank, a sum sufficient to face the de- 
mands upon him; whereas, the merchant of Edinburgh is re- 
lieved from this necessity, and at liberty to invest the whole 
of his funds, in the confidence that the bank will advance him 
thfe money he may happen to require. («) 

A bank of circulation affords the advantage of economizing 
capital, by reducing the amount of the sum, kept in reserve 
for the current and contingent expenses of the individuals it 
accommodates. 

Bank bills or notes, payable on demand, and circulating as 
cash, play so important a part in the progress of national 
wealth, and have engendered such important errors in the 
brain of many writers of repute and information on other to- 
pics, that it will be worth while to examine their nature and 
consequences in a very particular manner. 

I should premise, that the residue of this section applies ex- 
clusively to bank-notes, depending solely upon the credit of 
the bank for their currency, and convertible at pleasure into 
cash or specie. 

It is a matter no less of curiosity than of importance, to in- 
quire whether bank-notes, or paper destitute of intrinsic value, 
be any addition to the stock of national wealth, and what, if 
any, is the possible extent of that addition; for, were there no 
limits to it, there could be no end to the wealth, that a state 
might acquire in a short time by the mere fabrication of some 
reams of paper. The solution of this grand problem may be 
set down as one of Smith's happiest efforts; yet it is not every 
body, that comprehends his reasoning; I will try to render it 
more generally intelligible. 

The wants of a nation require a certain supply of each par- 



(a) The two methods resolve themselves practically into one; for mer- 
chants of good credit can always procure discountable paper; and the sole 
essential difference is, that, in one case, the credit is individual and un- 
evidenced, in the other, evidenced, and, in most cases, joint also. The 
bank of England requires the names of more than one firm on the paper it 
discounts. Country bankers often content themselves with the security, or 
note of hand, of the borrower alone. T. 



222 ON PRODUCTION. book t. 

ticular commodity, and the extent of that supply is determined 
by the relative prosperity of the nation for the time being. A 
surplus of each of those commodities beyond this demand is 
either not produced at all, or, if produced, must occasion a de- 
cline of relative local value: it, therefore, naturally finds its 
way out of the country, and goes in quest of a market, where 
it may be in higher estimation. 

Money is, in this respect, like all other commodities; it is a 
convenient agent, and, therefore, employed as such in all opera- 
tions of exchange; but the intensity of the demand for it is de- 
termined in each community, by the relative extent and ac- 
tivity of the exchanges negotiated within it. As soon as there 
is a supply of money sufficient to circulate all the commodities 
there are to be circulated, no more money is imported; or, if a 
surplus flow in, it emigrates again in quest of a market, where 
its value is greater, or where its utility is more desired. It is 
seldom or never that any body keeps in his purse or his cof- 
fers more specie, than enough to meet the current demand^of 
his business or consumption.* Every excess beyond these 
demands is rejected, as bearing neither utility nor interest; 
and the community at large is fully supplied with specie, as 
soon as each individual is possessed of the portion suitable to 
his condition and relative station in society. 

It may be safely left to private interest, to make the best use 
of the excess of specie beyond the demand for circulation. 
The notion, that every item of specie, that crosses the fron- 
tier, is so much dead loss to the community, is just as absurd 
as the supposition, that a manufacturer is so much the poorer, 
every time he parts with his money in the purchase of the in- 
gredient or raw material of his manufacture; or that individuals, 
the aggregate of whom makes up the nation, present foreigners 
gratuitously with all the money they part with. 

Taking it for granted, then, that the specie, remaining in 
circulation within the community, is limited by the national 
demand for circulating medium; if any expedient can be de- 
vised, for substituting bank-notes in place of half the specie, 
or the commodity, money, there will evidently be a super- 
abundance of metal-money, and that superabundance must be 
followed by a diminution of its relative value. But, as such 
diminution in one place by no means implies a cotemporaneous 
diminution in other places, where the expedient of bank-notes 
is not resorted to, and where, consequently, no such supera- 
bundance of the commodity, money, exists, money naturally 
resorts thither, and is attracted to the spot where it bears the 
highest relative value, or is exchangeable for the largest quan- 
tity of other goods: in other words, it flows to the markets 
where commodities are the cheapest, and is replaced by goods, 
of value equal to the money exported. 

* No account is here taken of the money hoarded, which, for the national 
interest, might just as well have remained in the mine. 



CHAP. XXII. ON PRODUCTION. 223 

The money, that can emigrate in this manner, is that part 
only of the circulating medium, which has a value elsewhere 
than Avithin the limits of the nation; that is to say, the specie or 
metal-money. Since, however, specie does not emigrate with- 
out an equivalent return; and, since its value, which before 
existed in the shape of specie, and was exclusively engaged in 
facilitating circulation, thenceforth assumes the form of a va- 
riety of commodities, all items of the reproductive national 
capital, there follows this remarkable consequence; that the na- 
tional capital is enlarged to the full amount of all the specie 
exported upon the introduction of the substitute. Nor is the 
internal national circulation at all cramped for want of money 
by this export; for the functions of the specie, that has been 
withdrawn, are just as well performed by the paper substituted 
in its stead. 

However valuable an acquisition the national capital may 
thus receive, it must not be rated above its real amount. I 
have supposed, for the sake of simplicity, that half the specie 
might be replaced by circulating notes: but this is a monstrous 
proportion; particularly if it be considered, that paper can not 
retain its value as money any longer than while it is readily 
and instantly convertible into specie; I say, readily and 
instantly, because otherwise people would prefer specie, 
which is at all times, and without the least hesitation, taken 
for money. To insure this requisite convertibility, it is ne- 
cessary, that, besides having at all times a fund in reserve, in 
private bills or securities, or in specie, sufficient to meet all the 
notes that may be presented, the bank itself should be at all 
times within reach of the holders of its notes. Therefore, if 
the territory be of any extent, and the notes so generally cir- 
culated, as to form half of the circulating medium, the subor- 
dinate offices of the bank must be greatly multiplied to place 
them within reach of all the note holders. 

But, granting the possibility of such an arrangement, and 
admitting, that paper might supplant as much as half the re- 
quisite national currency of specie, let us see what would be 
the amount of the acquisition to the national capital. 

No writer of repute has ventured to estimate the requisite 
circulating specie of any nation, higher than 1-5 of the annual 
national product; some indeed have reckoned it as low as 1-30. 
Taking the highest estimate, viz. 1-5 of the annual product, 
which, for my own part, I consider greatly above the reality 
in any case; a nation, whose annual product should amount to 
20 millions, would need but 4 millions of specie. Therefore, 
in case the half, or 2 millions, were supplanted by circulating 
paper, and employed in augmenting the national productive 
capital, that capital would be once for all augmented, by a 
value equal to 2-20 or 1-10 of the annual product of the nation. 

Again, the annual product of a nation would, probably, be 
much over-rated at 1-10 of the gross national productive capi- 
tal; but let it be set down at that rate, allowing 5 per cent, 
interest on productive capital, and 5 per cent, wages and profits 



224 ON PRODUCTION. book i. 

of the industry it sets in motion. On this calculation, sup- 
posing the paper substitute to add to the national capital, in the 
ratio of 1-10 of its annual product, this addition will not, at the 
highest estimate, exceed 1-100 of the previous capital. 

Although the practicable issue of bank-notes procures to a 
nation of moderate wealth an accession of capital, much less 
considerable than people may fondly imagine, this accession 
is, notwithstanding, of very great value; for, unless the pro- 
ductive energy of the nation be extremely great, as in Great 
Britain, or the national spirit of frugality very general and per- 
severing, as in Holland, the annual savings withdrawn from 
unproductive consumption, to be added to productive capital, 
form, even in thriving states, a very inconsiderable portion of 
the gross annual revenue. Nations, whose production is sta- 
tionary, as every body knows, make no addition to their pro- 
ductive capitals; and the consumption of those on the decline 
annually encroaches on their capitals. 

Should the paper-issues of a bank at any time exceed the de- 
mands of circulation, and the credit enjoyed by the establish- 
ment, there follows a perpetual reflux of its notes, and it is put 
to the expense of collecting specie, which is absorbed as fast 
as collected. The Scotch banks, though productive of great 
benefit, have been obliged, upon such trying occasions, to keep 
agents in London constantly employed, in scraping specie to- 
gether at a charge of two per cent., which specie was instantly 
absorbed. The bank of England, in similar circumstances, 
was under the necessity of buying gold bullion, and getting it 
coined; and this coin was melted again as fast as it was paid by 
the Bank, in consequence of the high price of the metal, which 
was itself the effect of the constant purchases made by the 
Bank, to meet the calls upon it for specie. In this manner, it 
sustained the annual loss of from 2 J to 3 per cent., upon a sum 
of about 850,000/.,* more than 20 millions of our money. I 
say nothing of the situation of this bank of late years, since its 
notes have acquired a forced circulation, and, consequently, 
altered their nature entirely. 

The notes issued by a bank of circulation, even if it have no 
funds of its own, are never issued gratuitously; and, therefore, 
of course, imply the existence, in the coffers of the bank, of a 
value of like amount, either in the shape of specie, or of se- 
curities bearing interest; upon which latter only, the whole 
real advance of the bank is made; and this advance can never 
be made upon securities that have a long time to run; for the 
securities are the fund, that is to provide for the discharge of 
another class of securities, in the hands of the public at large, 
payable at the shortest of all possible notice; viz., at sight. 
Strictly speaking, a bank can not be at all times in a condition 
to face the calls upon it, and deserve the entire confidence of 
the public, unless the private paper it has discounted, be all, 

* Wealth of Nations, Book ii. c. 2. 



CHAP. XXII. ON PRODUCTION. 225 

like its own notes, payable at sight; but, as it is no easy matter 
to find substantial assets, that shall bear interest, and at the 
same time be redeemable at sight, the next best course is 
to confine its issues to bills of very short dates; and, indeed, 
well-conducted banks have always rigidly adhered to this 
principle. 

From the preceding considerations may be deduced a con- 
clusion, fatal to abundance of systems and projects; viz. that 
credit-paper can supplant, and that but partially, nothing more 
than that portion of the national capital performing the func- 
tions of money, which circulates from hand to hand, as an 
agent for the facility of transfer; consequently, that no bank 
of circulation, or credit paper of any denomination whatever, 
can supply to agricultural, manufacturing, or commercial en- 
terprise, any funds for the construction of ships or machinery, 
for the digging of mines or canals, for the bringing of wasteland 
into cultivation, or the commencement of long-winded specula- 
tions; any funds, in short, to be employed as vested capital. 
The indispensable requisite of credit-paper is, its instant con- 
vertibility into specie; when the sum total of the paper issued 
does not exist in the coffers of the bank, under the shape of 
specie, the deficit should at least be supplied by securities of 
very short dates; whereas, an establishment, that should lend 
its funds to be vested in enterprises, whence they could not be 
withdrawn at pleasure, could never be prepared with such se- 
curities. An example will illustrate this position. Suppose a 
bank of circulation to lend 30,000 Jr. of its notes, circulating as 
cash, to a landholder on mortgage of his land, presenting the 
amplest security. This loan is destined by the landholder to 
the construction of necessary buildings, for the cultivation of 
the estate; for which purpose he contracts with a builder, and 
pays him the 30,000/r. of notes advanced by the bank. Now, 
if the builder, after a short lapse of time, be desirous of turn- 
ing the notes into specie, the bank can not pay him by a.trans- 
fer of the mortgage. The only property the bank has to meet 
the 30,000yr. of notes is a security, ample beyond doubt, but 
not available at the moment. 

The securities in the hands of a bank, I hold to be a solid 
basis for the whole of its issues of notes, provided those secu- 
rities be of solvent persons, and have not too long to run; for 
the securities will be redeemed either with specie, or with the 
notes of the bank itself. In the first case, the bank is suppli- 
ed with the means of paying its notes; in the second, it is sav- 
ed the trouble of providing for them. 

If, by any circumstance, the notes be deprived of their pow- 
er of circulating as specie, the task of replacing the metal for 
the paper-money does not devolve upon the bank; nor was it 
at the first saddled with the business of turning to account the 
metal money its notes rendered superfluous. For, as we have 
already observed, the bank can extinguish the whole of its 
paper with the private securities it holds. The inconvenience 
36 



326 ON PRODUCTION. book i. 

falls upon the public, which is under the necessity of finding 
a new agent of circulation, either by a re-import of the metal- 
money, or by the substitution of private paper; but probably 
the public would, in such circumstances, apply again to a bank 
conducted on sound principles.* 

This will serve to explain, why so many schemes of agricul- 
tural banks for the issue of circulating and convertible notes 
on ample landed security, and so many other schemes of a simi- 
lar nature, have fallen to the ground in very little time, with 
more or less loss to the shareholders and the public, t Specie 
is equivalent to paper of perfect solidity, and payable at the 
moment; consequently it can only be supplanted by notes of 
unquestionable credit, and payable on demand; and such notes 
can not be discharged by a bare security, even of the best pos- 
sible kind. 

For the same reason, bills of exchange in the nature of ac- 
commodation-paper, as it is called, can never be a sound basis 
for an issue of convertible paper. Such bills of exchange are 
paid when due by fresh bills, that have a further term to run, 
and are negotiated with the deduction of discount. When the 
latter fall due, they are met by a third set payable at a still 
later date, which are discounted in like manner. If the bank 
discounts such bills, the operation is no more than an expedi- 
ent for borrowing of the bank in perpetuity; the first loan 
being paid with a second, the second with a third, and so on. 
And the bank experiences the evil of issuing more of its notes, 
than the circulation will naturally absorb, and the credit of the 
establishment will support; for the notes, borrowed upon such 
bills, do not help to circulate and diffuse real value, because 
they represent and contain no real value themselves; conse- 
quently, they continually recur to be exchanged for specie. It 
is on this account, that the discount-bank of Paris, while it con- 
tinued to be well administered, did, as the present banks of 
France and of England do still refuse, as far as it is able, to 
discount accommodation-paper. 

The consequences are similar and equally mischievous, 

• Since the first publication of this passage, this very circumstance has 
happened in respect to the bank of Paris, in 1814 and 1815, when that capi- 
tal was besieged and occupied by the allied armies. The advances of the 
bank to the government, and to individuals, which could not be recalled 
immediately, did not exceed the capital of the establishment, for which the 
share-holders can not be called upon; and its paper-issues, payable to bearer, 
were all covered, either by specie in hand, or by commercial paper of short 
dates. By this means, notwithstanding the veiy critical circumstances of 
the moment, the merchants continued to employ its notes; which they could 
not well do without; and they were paid as usual in cash without interrup- 
tion, during the whole of the hostile occupation: which shows at once the 
utility of a bank of circulation, and the advantage of leaving inviolate the 
convertibility of its paper-issues. 

-fin 1803, the land-bank of Paris was, for this reason, obliged to suspend 
the payment of its notes in cash; and to give notice, that they would be paid 
off by instidments out of the pi'oceeds of its real securities. 



CHAP. XXII. ON PRODUCTION. 227 

when a bank makes advances to government in perpetuity, or 
even for a very long period. (a) This was the cause of the 
failure of the Bank of England. Not being able to obtain pay- 
ment from government, it was unable to withdraw the notes 
in which the loan was made. From that moment its notes 
ceased to be convertible; they have since enjoyed a forced 
circulation. The government, being itself unable to supply 
the bank with the means of payment, discharged that body 
from its liability to its own creditors.* 

The holders of the notes of a bank issuing convertible pa- 
per run little or no risk, so long as the bank is well adminis- 
tered, and independent of the government. Supposing a total 
failure of confidence to bring all its notes upon it at once for 
payment, the worst that can happen to the holders is, to be 
paid in good bills of exchange at short dates, with the benefit 
of discount; that is to say, to be paid with the same bills ofex- 

• Thornton, in his tract on the Paper Credit of Great Britain, written ex- 
pressly with a view to justify the suspension of cash-payments by that es- 
tablishment, has attacked the positions of Smith upon this subject. He 
tells us, that the extraordinary run upon the bank, which broug-ht about 
the suspension, was occasioned, not by the excess of its issues, but, on the 
contrary, by their partial contraction. 'An excessive limitation of bank- 
notes,' he observes, • will produce failures, failures must cause consterna- 
tion, and consternation must lead to a run upon the bank for guineas.' By 
this reference to an extreme case, he endeavours to support his paradoxical 
opinions. When a convertible paper has succeeded in driving out of the 
country too large a portion of the metalic money, and the confidence in 
the paper happens suddenly to decline, great confusion and embarrassment 
■will doubtless ensue, because the remaining agent of circulation is insuffi- 
cient to effect the business; but it is a great mistake to suppose, that tlie 
deficiency can be remedied by the multiplication of a paper, not enjoying 
the confidence of the public. If the bank of England was able to siu-vive 
the shock, it was because of the indispensable necessit}' of some agent of 
transfer, of some money or other, of paper in default of all others, in so 
commercial a country; because the government and the bankers of London, 
who were interested in the safety of the bank, unanimously agreed not to 
call upon it for cash, until it should be in a condition to pay; that is to say, 
until the government should have paid its advances in actual value. Tlie 
bank had lent to the government more than its whole capital; for to that 
extent it might have gone with safety, its capital not being wanted for tiie 
discharge or convertibility of its paper; had it not so done, the short bills in 
its possession would have been suilicient for the extinction of its converti- 
ble paper. 



(a) That is to say, advances its notes. A bank, like an individual, may 
advance its capital, which then becomes more or less vested or fixed. The 
whole capital of the Bank of England has been thus advanced; and there 
■would have been no danger, had it not advanced its notes also. When the 
advances of paper are made upon transferable securities, stock, exchequer 
bills, and the like, those securities may be sold for cash, or for the notes of 
the bank itself, so long as they retain their value, and thus the safety and 
solvency of the bank maintained. But this operation is unnecessarily com- 
plex; for the government might itself have sold, and thus have saved the 
brokerage or profit accruing upon the operation to the Bank. T 



228 ON PRODUCTION. book t. 

change, whereon the bank has issued its notes. («) If the bank 
have a capital of its own, there is so much additional security, 
but, under a government subject to no control, or to nominal 
control only,* neither the capital of the bank, nor the assets 
in its hands, offer any solid security whatever. The will of 
an arbitary prince is all the holders have to depend upon; and 
every act of credit is an act of imprudence. 

As far as I am capable of judging, such is the effect of banks 
of circulation and of their paper issues upon individual and 
national wealth. This effect is described by Smith in a quaint 
and ingenious metaphor. The capital of a nation he likens to 
an extensive tract of country, whereupon the cultivated dis- 
tricts represent the productive capital, and the high roads the 
agent of circulation, that is to say, the money, that serves as 
the medium to distribute the produce among the several 
branches of society. He then supposes a machine to be in- 
vented, for transporting the produce of the land through the 
air; that machine would be the exact parallel of credit-paper. 
Thenceforward the high roads might be devoted to cultiva- 
tion. 'The commerce and industry of the country, however,' 
he continues, 'though they may be somewhat augmented, can 
not be altogether so secure, when they are thus, as it were, 
suspended upon the Daedalian wings of paper-money, as when 
they travel about upon the solid ground of gold and silver. 
Over and above the accidents, to which they are exposed from 
the unskilfulness of the conductors of this paper-money, they 
are liable to several others, from which no prudence or skill of 
those conductors can guard them. An unsuccessful war, for 
example, in which the enemy got possession of the capital, 
and consequently of that treasure, which supported the credit 
of the paper-money, would occasion a much greater confusion 
in a country, where the whole circulation was carried on by 
paper, than in one, where the greater part of it was carried on 

* At the period of my writing, the Parliament of Great Britain represents 
the interests, not of the nation, but of the ministry, which is an ohgarchical 
faction, nominated by the king-. 



(a) Our autlior's view of the virtual constitution of this country is theo- 
retically just; and would be practically so, where there not another power, 
that really directs tlie public councils, though in a very inefficient and 
clumsy manner. The representative body represents, not interests but per- 
sons, and is wholly at the beck of an)' degree of folly or wickedness that 
may happen to get into office, liut violent abuses geiierate violent reme- 
dies; and, as the despot in Turkey is controlled by the fear of the bow"-string, 
so the corruption of an ill-chosen legislature is checked by public opinion, 
animated by freedom of speech and of the press. The legislative body is 
of little use, but as a means of rousing the energy of public opinion. Were 
the doors of Parliament closed, the paper of England might soon become 
as little effectual, as one that should be issued by the Ottoman Porte, or the 
Sophi. Whence may be seen the absolute necessity of preserving, at all 
hazards, the sole remaining check to abuse and national decay. 1'. 



CHAP. XXII. ON PRODUCTION. 229 

by gold and silver. The usual instrument of commerce hav- 
ing lost its value, no exchanges could be made but either by- 
barter or upon credit. All taxes having usually been paid in 
paper-money, the prince would not have wherewithal either 
to pay his troops, or to furnish his magazines; and the state 
of the country would be much more irretrievable, than if the 
greater part of its circulation had consisted in gold and silver. 
A prince, anxious to maintain his dominions at all times in 
the state, in which he can most easily defend them, ought 
upon this account to guard, not only against that excessive 
multiplication of paper money, which ruins the very banks 
which issue it, but even against that multiplication of it, which 
enables them to fill the greater part of the circulation of the 
country with it.'*(«) 

Forgery alone is enough to derange the affairs of the best 
conducted and most solid bank. An^ forgery of notes is more 
to be apprehended, than counterfeits of specie. The stimulus 
of gain is greater. For there is more profit to be made by 
converting a sheet of paper into money, than by giving the 
appearance of precious metal to another metal, that has some 
though verj" little, intrinsic value, especially if it be compound- 
ed or covered with a small portion of the counterfeited metal; 
and perhaps, too, the materials for the former operation are 
less liable to discovery. Besides, the counterfeits of specie can 
never reduce the value of the specie itself, because the latter 
has an intrinsic and independent value as a commodity; where- 
as, the mere belief that there are forged notes abroad, so well 
executed, as to be scarcely distinguishable from the genuine, 
is enough to bring both forged and genuine into discredit. 
For which reason, banks have sometimes preferred the loss 
of paying notes they know to be forged, to the hazard of 
bringing the genuine ones into discredit, by the exposure of the 
fraud. (Z>) 

* Wealth of Nations, book ii. e. 2. 



(a) Smith is here speaking- of convertible paper, which is never paper- 
money. The difference is now beginning to be understood; in his time it 
was not perceived, although he instances tlie English colonies of North 
America, as having establislied an inconvertible paper. Most of tlie incon- 
veniences he mentions witli regard to convertible, attach also to inconverti- 
ble paper; whicli is also more liable to excessive issue, and to the abuse 
of the public authority. But it has advantages not possessed by its precur- 
sor, convertible paper. T. 

(b) The past experience of England has shown, that the danger of forge 
ry is far less than our autlio'r seems to imagine; for, with the most mo- 
derate skill of execution, it has been unable materially to affect the value 
of the paper at large even when tliat paper was most abundant. An ex- 
periment is about to be tried, for the furtlier reduction of this danger, and 
with every prospect of success. The injury to morals, and increase of 
crime and punishment, has, indeed, been most calamitous, but it must be 
remembered, tliat this branch of criminality only has thriven, and tliat 
otliers have been wonderfully checked. Highway robbery has almost 



230 ON PRODUCTION. book i. 

One method of checking the immoderate use of notes is, to 
limit them to a fixed and high denomination of value; so as to 
make them adapted to the circulation of goods from one mer- 
chant to another, but inconvenient for the circulation between 
the merchant and the consumer. It has been questioned, 
whether a government has any right to prohibit the issue of 
small notes, while the public is willing to take them; and whe- 
ther such limitation be not a violation of that liberty of com- 
merce, which it is the chief duty of a government to protect. 
But the right undoubtedly is just as complete, as that of order- 
ing a building to be pulled down, because it endangers the 
public safety. 



SECTION IV. 



Of Paper-Money. 

The distinctive appellation of paper-money, I have reserv- 
ed exclusively for those obligations, to which the ruling pow- 
er may give a compulsory circulation in payment for all pur- 
chases, and discharge of all debts and contracts, stipulating a 
delivery of money. I call them obligations, because, though 
the authority that issues, is not bound to redeem them, at least 
not immediately, yet they commonly express a promise of re- 
demption at sight, which is absolutely nugatory; or of redemp- 
tion at a date expressed, for which there is no sort of security; 
or of territorial indemnity, the value of which we shall present- 
ly inquire into. 

Such obligations, whether subscribed by the government or 
by individuals, can be converted into paper-money by the 
public authority only, which alone can authorize the owners 
of money to pay in paper. The act is, indeed, an exertion, not 
of legitimate, but of arbitrary authority; being a deterioration 
of the national money in the extreme degree. 

Upon the principles above established, it should seem, that 
a money destitute of all value as a commodity, ought to pass 
for none in all free dealing subsequent to its issue; and this is 
always the case in practice sooner or later. The notes of what 
was improperly called Law's Bank, and the assigndts issued 
during the French revolution, were never regularly called in 
or cancelled; yet those of the highest denomination would not 
pass at present for a single sol. How, then, came they ever 



ceased; and no battel' engine of police could have been devised, for the 
detection of fraud or spohation, than a paper-money well conducted. The 
projected improvement in the execution, it is hoped, will check the crime 
of forgery, without reducing the present check upon all other branches of 
criminalit}'. T. 



CHAP. XXII. ON PRODUCTION. 231 

to pass for more than their real value? Because there are many- 
expedients of fraud and violence, which will always have a 
temporary efficacy. 

In the first place, a paper, wherewith debts can be legally, 
through fraudulently, discharged, derives a kind of value from 
that single circumstance. Moreover, the paper-money may 
be made efficient to discharge the perpetually recurring claims 
of public taxation. Sometimes a tariffe or maximum of price 
is established; which, indeed, soon extinguishes the production 
of the commodities affected by it, but gives to the paper-money 
a portion of the value of those actually in existence. Besides, 
the very creation of a paper-money with forced circulation oc- 
casions the disappearance of metallic money; for, as it is made 
to pass at par with the paper, it naturally seeks a market, 
where it can find its true level of value. The paper-money is 
thus left in the exclusive possession of the business of circula- 
tion; and the absolute necessity of some agent of transfer, in 
every civilized community, will then operate to maintain its 
value.* So urgent is this necessity, that the paper-money of 
England, consisting of the notes of the bank, has been kept at 
par with specie, simply by the limitation of the issues to the 
demands of circulation. 

Nations precipitated into foreign wars, before they have had 
time previously to accumulate the requisite capital for carry- 
ing them on, and destitute of sufficient credit to borrow of their 
neighbours, have almost always had recourse to paper-money, 
or some similar expedient. The Dutch, in their struggle with 
the Spanish crown for independence, issued money of paper, 
of leather, and of many other materials. The United States 
of America, under similar circumstances, likewise had recourse 
to paper-money; and the expedient, that enabled the French 
republic to foil the formidable attack of the first coalition, has 
immortalized the name of assigndts. 

* Wherever a paper-money has been established, the difFerence between 
its value in the home market, where it has utility, and its value in foreig-u 
markets, where it has no utility, has afforded a fruitful field for speculation, 
that has enriched many adventurers. In 1811, 100 guineas in gold would 
purchase at Paris a bill of exchange on London, for 140/. sterling, payable 
in the paper which was the only currency of England. Yet the difference 
between gold and paper in the London market at the same period, was only 
15 per cent. It was in this way, that the paper was of higher value in 
England than abroad. Accordingly, 1 find from returns with which I have 
been favoured, that gold in guineas or bullion was smuggled into the ports 
of Dunkirk and Gravehnes alone, in the years 1810, 11, 12, and 13, to the 
amount of 182,124,444 /r. There was a similar speculation in other com- 
modities at large; but it was attended with more risk and difficulty; the 
import into France being very hazardous, although the export from En- 
gland was encouraged in every possible way. Yet this traffic would soon 
have found its level, for it must have produced bills on England in such 
quantity, as to have brought the exchange to par at least, had not the con- 
tinental subsidies of England fui'nished a continual supply of bills on Lon- 
don without any return. 



232 ON PRODUCTION. book i. 

Law has been unjustly charged with the whole blame of the 
calamities resulting from the scheme that bears his name. — 
That he entertained just ideas respecting money, may be 
gathered from the perusal of a tract* he published in his na- 
tive country, Scotland, to induce the Scotch government to 
establish a bank of circulation. The bank established in 
France, in 1716, was founded on the principles there set forth. 
Its notes were expressed in these words: 

" The Bank promises to pay the bearer at sight ****** 
livres in money of the same weight and standard as the money 
of this day. value received at Paris," &c. 
— The bank, which was then but a private associajtion, paid its 
notes regularly on demand: they were not yet metamorphosed 
into paper-money. Matters remained on this footing, and went 
on very well, till the year 171 9;t at which period the king, or 
rather the regent, repaid the shareholders, and took the ma- 
nagement into his own hands, calling it the Royal Bank. The 
notes were then altered to this form : 

" The Bank promises to pay the bearer at sight ****** 
livres in silver coin. Value received at Paris,^' &c. 
— This alteration, slight as it was in appearance, was a radical 
one in substance. The first note stipulated to pay a fixed 
quantity of silver, viz: the quantity contained in the livres 
current at the date of issuing the notes. The second merely 
engaged to pay livres, and so opened a door for whatever al- 
terations an arbitrary power might think proper to make in 
the real value expressed by the word livre. And this was 
called fixing the rate of the paper-money; whereas, on the 
contrary, it was unfixing, and making it a fluctuating value; 
and the fluctuations were truly deplorable. Law strenuously 
opposed the innovation; but principle was compelled to give 
way to power; and the crimes of power, when the consequen- 
ces began to be felt, were confidently attributed to the fallacy 
of the principle. 

The assigndts issued by the revolutionary government were 
worth even less than the paper-money of the regency. The 
latter gave a promise, at least, of paying in silver: and, though 
the payment might be greatly curtailed, by a deterioration of 
the silver-coin, yet sooner or later the paper might have been 
redeemed, if the government had but been more moderate in 
its issues, and more scrupulous in fulfilling its engagements. 
But the assigoicits conveyed no right to call for silver; nothing 
but a right to purchase or obtain the national domains. Let 
us see what this right was really worth. 

The original assigndts purported to be payable at sight the 

* This work was translated into French while Law continued in the office 
of" Controller-General of France; and is entitled Considerations on Commerce 
and Money. 

■j- Vide Dutot. torn. ii. p. 200, for a detail of the beneficial effects of the 
institution, as originally conducted. 



CHAP. XXI. ON PRODUCTION. 233 

Caisse de V Extraordinaire, where they were, in fact, never 
paid at all. It is true, they were received in payment for the 
national domains bought by individuals at a competition-price; 
but the value of these domains could never give any deter- 
minate value to the assigndts, because their nominal value 
increased exactly in proportion as that of the assigndts de- 
clined. The government was not sorry to find the price of 
national domains advance, because it was thereby enabled to 
withdraw a greater amount of assigndts, and, consequently, 
to re-issue new ones, without enlarging the quantity afloat. — 
It was not aware, that, instead of the national domains ad- 
vancing in price, the assigndts were undergoing a rapid de- 
preciation, and that the further that depreciation was pushed, 
the more assigndts must be issued in payment of an equal 
quantity of supplies. 

The last assigndts no longer purported to be payable at 
sight. The alteration was little attended to, because neither 
first nor last were, in fact, ever paid at all. But their vicious 
origin was made more apparent. The paper contained these 
words: 

" National domains — ^dssigndt of one hundred yr«wc.y," &c. 
— Now, what was the meaning of the term one hundred 
francs? What value did they convey the notion of? Was it 
the value of the quantity of silver, heretofore known under the 
designation of one hundred francs? No; for 100 fr. could 
not possibly be obtained with an assigndt io that amount. Did 
it convey the idea of as much land, as might be purchased for 
100 fr. in silver? Certainly not; for that quantity of land 
could no more be obtained, even from the government, by an 
assigndt oi \Q0 fr., than 100 /r. in specie. The domains 
were disposed of at public auction for as many assigndts as 
they would fetch; and the value of this paper had latterly so 
far declined, that one of 100 fr. would not buy an inch square 
of land. 

In short, setting aside all consideration of the discredit at- 
tached to that government, the sum expressed in an assigndt 
presented the idea of no definite value whatever; and those 
securities could not but have fallen to nothing, even had the 
government inspired all the confidence, of v^^hich it was so 
eminently destitute. The error was discovered in the end, 
when it was impossible any longer to purchase the most trifling 
article with any sum of assigndts, whatever might be its 
anaount. The next measure was to issue manddts, that is to 
say, papers purporting to be an order for the absolute transfer 
of the specific portion of the national domains expressed in 
the manddt: but, besides that it was then too late, the opera- 
tion was infamously executed. 



37 



BOOK 11. 

OF THE DISTRIBUTION OF WEALTH. 



CHAPTER I. 



OF THE BASIS OF VALUE; AND OF SUPPLY AND DEMANIT. 



The principal phenomena of production have been investi- 
gated in my first book; wherein I have shown how human 
industry, with the aid of capital and of natural agents and 
properties, creates every kind of utility, which is the primary 
source of value; and in what way social institutions and public 
authority operate to the benefit or the prejudice of production. 
This second book will be devoted to the consideration of the 
distribution of wealth: to which end it will be necessary, first, 
to analyze the nature of value, the object of distribution; se- 
condly, to ascertain the laws, which regulate the distribution 
of value, when once created amongst the various members of 
society, so as to constitute individual revenue. 

The valuation of an object is nothing more or less than the 
affirmation, that it is in a certain degree of comparative esti- 
mation with some other specified object; and any other object 
possessed of value may serve as the point of comparison. A 
house, for instance, may be valued in corn or in money. To 
say that it is worth 20,000 Jr. conveys a more accurate notion 
of its value, than to say that it is worth 1000 hectolitres of 
wheat, solely because the habit of reckoning the value of all 
commodities in coin makes it easier for the mind to form an 
idea of the value of 20,000yr. in other commodities, that is to 
say, of the quantity of other commodities obtainable for that 
sum, than of that obtainable for 100 hectal. of wheat. Yet if 
wheat be 20 /r. the hectol., the degree of value expressed by 
each is the same. 

In every act of valuation, the object valued is the fixed da- 
tum. In the instance first given, the house is the datum: it 



236 ON DISTRIBUTION. book ii. 

is a definite amount of materials, put together in a definite 
manner, upon a definite site. But the point of comparison is 
variable in amount, according to the degree of estimation in 
the mind of the valuer. If valued at 20,000yr. the house is 
reckoned to be equivalent to so many pieces of silver coin of 
the weight of 5 grammes, with a mixture of 1-10 alloy; if at 
22,000 /r. or 18,000 /r. it is but a variation of the quantity of 
the commodity, that is the specific point of comparison. So 
likewise, if that point be wheat, the variable quantity of that 
commodity would express the degree of value. 

Valuation is vague and arbitrary, when there is no assu- 
rance that it will be generally acquiesced in by others. The 
owner of the house may reckon it worth 22,000/^. while an in- 
different person would value it at no more than 1 8,000 yr., 
and probably neither would be ri^ht. But if another, or a 
dozen other persons be willing to give for it a specific amount 
of other comrflodities, say 20,000 />. or 1000 hectol. of wheat, 
we may conclude the estimate to be a correct one. A house 
that will fetch 20,000 /r. in the market is worth that sum.* — 
But if one bidder onl}^ will give that price, and he is unable 
to re-sell it without loss, he will give more than it is worth. 
The only fair criterion of the value of an object is, the quantity 
of other commodities at large, that can be readily obtained 
for it in exchange, whenever the owner wishes to part with 
it; and this, in all commercial dealings, and in all money valua- 
tions, is called the current priceA 

What is it, then, that determines this current price of com- 
modities? 

The want or desire of any particular object depends upon 
the physical and moral constitution of man, the climate he 
may live in, the laws, customs, and manners of the particular 
society, in which he may happen to be enrolled. He has 
wants, both corporeal and intellectual, social and individual; 
wants for himself and for his family. His bear-skin and rein- 

* My brother, Louis Say, of Nantes, has attacked this position in a short 
tract, entitled, Principales Causes de la Richesse el de la Misere des Pieuples 
et des Purticuliers, 8vo. Paris. JOeierville. He lays down the maxim, that 
objects are items of wealth, solely in respect of their actual utility, and not 
of their admitted or recognised utility. In the eye of reason, his position is 
certainly correct; but, in this science, relative value is the only guide. Un- 
less the deg'ree of utility be measured by the scale of comparison, it is left 
quite indefinite and vag-ue, and, even at the same time and place, at the 
mercy of individual caprice. The positive nature of value was to be estab- 
hshed, before political economy could pretend to the character of a science, 
whose province it is to investigate its origin, and the consequences of its 
existence. 

■\ In the earlier editions of this work, I had described the measure of 
value to be the value of the other product, that was the point of comparison, 
which was incorrect. The quantity and not the value of that other product, 
is the measure of value in the object of, valuation. This mistake gave rise 
to much ambiguity of demonstration, which the severity of criticism, both 
fair and unfair, has ti^ught me to correct. Fas tst et ah Iiosie doceri. 



CHAP. I. ON DISTRIBUTION. 237 

deer are articles of the first necessity to the Laplander; whilst 
their very name is unknown to the lazzarone of Naples, who 
cares for nothing in the world if he get but his meal of maca- 
roni. In Europe, courts of justice are considered indispensa- 
ble to the maintenance of social union; whereas the Indian of 
America, the Tartar, and the Arab, feel no want of such es- 
tablishments. It is not our business here to inquire, wherein 
these wants originate; we must take them as existing data, 
and reason upon them accordingly. 

Of these wants, some are satisfied by the gratuitous agency 
of natural objects; as of air, water, or solar light. These may 
be denominated natural wealth, because they are the sponta- 
neous offering of nature; and, as such, mankind is not called 
upon to earn them by any sacrifice or exertion whatever; for 
which reason, they are never possessed of exchangeable value. 
Other wants there are, that can only be satisfied by the em- 
ployment of objects possessed of an utility, which they could 
not have been invested with without some modification by 
human agency, — without having undergone some change of 
condition, and without some difficulty having been surmount- 
ed for the purpose. Of this kind are the products of agricul- 
ture, commerce, and manufacture, in all their infinite ramifica- 
tions. To them alone is any value attached; and for a very 
obvious reason; because the very act of production implies an 
act of mutual exchange, in which the producer has given his 
personal agency for the product obtained by its exertion. 
Wherefore, he will hardly resign it Avithout receiving what 
is, in his estimation, an equivalent. These may be called, 
social wealth, both because an act of exchange is in itself a so- 
cial act, and because exclusive property in the product obtain- 
ed by personal exertion, or by an act of exchange, can only be 
secured by social institutions. Social wealth, it is to be ob- 
served, is the only part of human wealth, that can form the 
subject of scientific research. 1. Because it is the only part 
that is the object of human estimation, or at least of such esti- 
mation, as is not altogether arbitrary and mental. 2. Because 
it is the only one which is created, distributed, and destroy- 
ed, according to any rules which can be assigned by human 
science. 

The knowledge of the ground-work of the quality, value, or 
rather exchangeable value, leads to the perception of its origin. 
The items of social wealth are invested with value by the ne- 
cessity of giving something to obtain them; and that some- 
thing is productive exertion. When once obtained, when this 
sacrifice has been made in the attainment, the party is really 
more wealthy; he has wherewithal to satisfy more wants; and, 
if the object obtained by this sacrifice be unsuited to the per- 
sonal wants of the owner, he may make use of it for the at- 
tainment of some object of personal desire, by the way of ex- 
change for some other product; which other product will itself 
be the result of similar productive exertion; so that, in fact, 



238 ON DISTRIBUTION. book ii. 

the exchange will be a mere mutual transfer of the productive 
exertion on either side, whereof the two products respectively 
are the result. When 15 kilogr. of wheat are given for 1 
kilogr. of coffee, there is a mere transfer of the productive 
agency exerted in creating the one, for that exerted in the 
creation of the other.* 

Wherefore, there is a current value or price established for 
productive service as well as for products. For, if the agency 
exerted in the creation of 15 kilogr. of wheat can obtain as its 
reward, in the way of exchange, either 15 kilogr. of wheat or 
1 kilogr. of coffee indifferently, what is there to prevent its 
obtaining in the same way any other equivalent product, say 
a yard of cotton cloth, 5 yards of ribbon, a dozen plates, or 
any thing else? Should the \5 kilogr. of wheat be exchangea- 
ble for a less amount of any of these commodities respectively, 
the productive agency exerted in the creation of wheat would 
be proportionately less rewarded, than that exerted in the 
creation of the specific commodity; and a portion of the former 
would be attracted to the latter branch of production, until the 
recompense of labour in each department should find its fair 
level. 

Each class of productive agency has a current price peculiar 
to itself. If the productive agency exerted in the production 
of 15 kilogr of wheat can obtain for itself but 1-15 of its 
own product, it will be entitled to no more than 1-15 of the 
value of any other product obtainable by exchange for that 
quantity of wheat; for instance, to 1-15 of 4/r., and so of other 
products. 

Thus it is obvious, that the current value of productive ex- 
ertion is founded upon the value of an infinity of products 
compared one with another;t that the value of products is not 
founded upon that of productive agency, as some authors have 
erroneously affirmed; J and that, since the desire of an object, 

* It is scarcely necessary to mention, that when commodities are ex- 
changed, not for one another, but for money, the case is no-wise varied. 
No seller ever takes money for his own consumption, or for any other pur- 
pose, than as an object of a second exchange; so that, in reality, the pro- 
duct sold is exchanged for the product bought with the price. When 15 
kilogr. of wheat have been sold for 4/r. and ikilogr. of coffee bought with 
that 4/r., the wheat has actually been bartered for the coffee, and the mo- 
ney that has intervened has withdrawn itself as completely, as if it had never 
appeared at all in the transaction. Wherefore it is quite correct to say, that 
relative value is determined by the relation of commodities one to another, 
and not solely by that of each commodity to money. 

-{- Tt must not be inferred from this passage, that I mean to say, that the pro- 
ductive agency exerted in raising a product, whose charges of production 
have amounted to 4/r., although it is saleable for 3/r. only, is therefore 
worth but ofr. My position merely implies, that this amount of productive 
service has, in such case, raised a value of 3/r. only, though it might have 
raised a value of 4/r. 

i Ricardo, Prin. Pol. Econ. and Taxation, 



GHAP. I. ON DISTRIBUTION. ^39 

and consequently its value, originates in its utility, it is the 
ability to create the utility wherein originates that desire, that 
gives value to productive agency; which value is proportionate 
to the importance of its co-operation in the business of produc- 
tion, and forms, in respect to each product individually, what 
is called, the cost of its production. 

The utility of a product is not confined to one human being, 
but applies to a whole class of society at the least, as in the case 
of particular articles of clothing; or to a whole community, as 
in that of most of the articles of food that are adapted to human 
consumption in general, without distinction of sex or age. 
For this reason, the demand for a specific object, or product, 
or act of productive exertion, has a certain degree of extent. 
The aggregate demand for sugar in France is said to exceed 
500,000 quintals per annum. Even the individual demand 
of a specific product for individual consumption may be more 
or less urgent. Whatever be its intensity, it may be called by 
the general name of demand; and the quantity attainable at a 
given time, and ready for the satisfaction of those who are in 
want of the specific article, may be called the supply or amount 
in circulation. 

But this must be understood with some limitation; for there 
is no object of pleasure or utility, whereof the mere desire 
may not be unlimited, since every body is always ready to 
receive whatever can contribute to his benefit or gratification. 
There must, therefore, be some bounds to demand; and the 
most effectual limitation is, the ability to give some other 
equivalent product for the object of desire. All the porters 
in a commercial city might desire to have a coach and six for 
the more comfortable execution of their business, without rais- 
ing the price of horses and carriages a tittle. The objects, 
which each individual has to give as an equivalent for the ob- 
ject of his desire, are no other than the products of his own 
productive means, which are limited even in the case of the 
most wealthy member of society. 

Wealth is, in all countries, distributed in every degree of 
gradation, from the populous level of mediocrity to the soli- 
tary pinnacle of extreme affluence. Accordingly, the products 
most generally desirable are really demanded by a limited 
number only, because they alone have wherewithal to obtain 
them; and even their ability may be more or less according to 
circumstances. Whence it may be further concluded, that the 
same product or products may be in greater demand at a lower 
scale of price, and when attainable by less productive exer- 
tion, although nowise increased in utility, merely because ac- 
cessible to a greater number of consumers; and, on the con- 
trary, less in demand at a higher scale of price, because ac- 
cessible to a smaller number. 

Suppose that, in a severe winter, a method should be hit 
upon of manufacturing knit-waistcoats of woollen at Q Jr. 
apiece; probably all who should have Qfr. left, after satisfying 



.240 ON DISTRIBUTION. book n. 

more urgent wants, would provide themselves with these waist- 
coats: but those who should have but S/r. left must still go 
w^ithout. If the same article could be produced at ^fr. these 
latter also might all be provided and become consumers; and 
the consumption would be still further extended, if they should 
be produced at ^fr. only. In this manner, products formerly 
within reach of the rich alone have been made accessible to 
almost every class of society, as in the case of stockings. 

When a product is raised in price, whether by taxation or 
otherwise howsoever, the contrary effect is experienced; the 
number of its consumers is reduced; for it can only be obtain- 
ed by such, as can afford to pay for it; and the ability to pur- 
chase is not increased by the same causes, that operate to raise 
the price. Thus in England, the great majority of the popu- 
lation is wholly precluded from the consumption of vinous li- 
quors, and of many other articles; for their attainment involves 
so large a sacrifice of products, or of productive agency, that 
those only can attempt it, who have a great deal of either to 
spare. In such cases, not only is the number of consumers 
diminished, but the consumption of each consumer is reduced 
also. Though a consumer of coffee may not be compelled, by 
a rise of its price, to relinquish that beverage altogether, he 
must at all events curtail the amount of his consumption; which 
is then like that of two individuals, of whom one discontinues, 
and the other remains able and willing to continue the use of 
the article. 

In commercial speculation, as the purchaser does not buy 
for his own consumption, he proportions his purchases to what 
he expects to sell. Since, then, the quantity he can sell de- 
pends upon the price he can afford to sell at, he will buy less 
according as the price rises, and more according as it falls. 

In poor countries, objects of even the commonest use, and 
of inferior price, frequently exceed the means of a great pro- 
portion of the population. There are countries, where shoes, 
though cheap, are out of reach of most of the inhabitants. — 
The price of this commodity does not fall to a level with the 
means of the people; because that level is still below the bare 
cost of production. But, shoes of leather, not being abso- 
lutely necessary to existence, those who are unable to procure 
these, wear wooden ones, (saiots,) or go barefoot. When 
this is unhappily the case with an article of primary necessi- 
ty, part of the population must perish, or at least cease to be 
renewed. These are the causes of a general nature, that limit 
the demand for each product, and for all products in general. 

In respect to supply, it consists of the whole of any com- 
modity which the owners for the time being are disposed to 
part with for an equivalent, in other words, to sell at the cur- 
rent rate; and not merely of what is actually on sale at the 
time. The whole of this is also called the circulating or float- 
ing stock. Yet, strictly speaking, no commodity is in circu- 
lation, exept during the act of transit from the seller to the 



CHAP. I, ON DISTRIBUTION. " 241 

purchaser, which is almost instantaneous. But the bare act of 
transit has no influence on the terms of the bargain, to which 
it is commonly subsequent; it is a mere matter of executive 
detail. The point of real importance is, the inclination of the 
owner to part with the object of property. A commodity is 
in circulation, whenever it is in quest of a purchaser, which it 
may be in the most urgent need of, without altering its lo- 
cality in the least. Thus, the stock in a shop or warehouse is 
in circulation; thus too, lands, rent-charges, houses, and the 
like, are said to be in circulation; and the expression is intelli- 
gible enough. Even industry is sometimes in circulation and 
sometimes not, according as it is either in quest of employ- 
ment, or already employed. 

For the same reason, an object ceases to be in circulation, 
the moment it is set apart, either for consumption or for ex- 
port to another market, or accidentally destroyed, or with- 
drawn by the caprice of its owner, or held back at a price, 
which amounts to a refusal to sell. 

Inasmuch as supply consists of those commodities only, 
which are to be had at the current price or ordinary rate of 
the market, a commodity raised by the cost of production 
above that level, will cease to be produced, or to form part of 
the supply. Wherefore, the supply will be more abundant, 
when the current price is high, and more scanty when that 
price has declined. 

Besides these universal and permanent limitations of supply 
and demand, there are others of a casual and transient nature, 
which always operate concurrently with the former. 

The prospect of an abundant vintage will lower the price of 
all the wine on hand, even before a single pipe of the expected 
vintage has been brought to market; for the supply is brisker, 
and the sale duller, in consequence of the anticipation. The 
dealers are anxious to dispose of their stock in hand, in fear of 
the competition of the new vintage; while the consumers, 
on the other hand, retard their fresh purchases, in the ex- 
pectation of gaining in price by the delay. A large arrival 
and immediate sale of foreign articles all at once, lowers their 
price, by the relative excess of supply above demand. On 
the contrary, the expectation of a bad vintage, or the loss of 
many cargoes on the voyage, will raise prices above the cost 
of production. 

Moreover, there are some particular products, which nature 
or human institutions have subjected to monopoly, and thus 
prevented from being supplied in equal abundance with those 
of a similar description. Of this kind are the wines of par- 
ticular and celebrated vineyards, the soil of which can not be 
extended by the extended demand. So the postage of letters 
is, in most countries, charged at a monopoly-price. 

Finally, whatever be the general or particular causes, that 
operate to determine the relative intensity of supply and de- 
mand, it is that intensity, which is the groundwork of price on 
38 



342 ON DISTRIBUTION. book ii. 

every act of exchange; for price, it will be remembered, is 
merely the current value estimated in money. The demand 
for all objects of pleasure, or utility, would be unlimited, did 
not the difficulty of acquirement, or price, limit and circum- 
scribe the supply. On the other hand, the supply would be 
infinite, were it not restricted by the same circumstance, the 
price, or difficulty of acquirement: for there can be no doubt, 
that whatever is producible would then be produced in un- 
limited quantity, so long as it could find purchasers at any 
price at all. Demand and supply are the opposite extremes of 
the beam, whence depend the scales of dearness and cheap- 
ness; the price is the point of equilibrium, where the momen- 
tum of the one ceases, and that of the other begins. 

This is the meaning of the assertion, that, at a given time 
and place, the price of a commodity rises in proportion to the 
increase of the demand and the decrease of the supply, and 
vice versa; or in other words, that the rise of price is in direct 
ratio to the demand, and inverse ratio to the supply. 

The utility of an object, or, what is the same thing, the de- 
sire to obtain it, may possibly be unable to raise its price to a 
level with its cost of production. In this case it is not pro- 
duced, because its production would cost more than the pro- 
duct would be worth. Probably the price that caviar^ would 
fetch at Paris would hardly equal the charge of producing it 
there; for it is so little in request there, that it scarcely would 
bring the lowest price that it could be procured for, and conse- 
quently it is not produced; but elsewhere, it is both produced 
and consumed in great quantities. 

When the price of any object is legally fixed below the 
charges of its production, the production of it is discontinued, 
because nobody is willing to labour for a loss: those, who be- 
fore earned their livelihood by this branch of production, must 
die of hunger, if they find no other employment; and those, 
who could have purchased the product at its natural price, are 
obliged to go without it. The establishment of the fixed rate, 
or maximum, is a suppression of a portion of production and 
consumption; that is to say, a diminution of the prosperity of 
the community, which consists in production and consump- 
tion. Even the produce already existing is not so properly 
consumed as it should be. For, in the first place, the proprie- 
tor withholds it as much as possible from the market. In the 
next, it passes into the hands, not of those who want it most, 
but of those who have most avidity, cunning, and dishonesty; 
and often with the most flagrant disregard of natural equity 
and humanity. A scarcity of corn occurs; the price rises in 
consequence; yet still it is possible, that the labourer, by re- 
doubling his exertions, or by an increase of wages, may earn 
wherewithal to buy it at the market price. In the mean time, 

* A pickle made of the roe of sturgeons, a favourite condiment of Rus- 
sian diet. 



CHAP. I. ON DISTRIBUTION. 243 

the magistrate fixes corn at half its natural price: What is the 
consequence? Another consumer, who had already provided 
himself, and consequently would have bought no more corn 
had. it remained at its natural price, gets the start of the la- 
bourer, and now, from mere superfluous precaution, and to 
take advantage of the forced cheapness, adds to his own store 
that portion, which should have gone to the labourer. The 
one has a double provision, the other none at all. The sale is 
no longer regulated by the wants and means, but by the su- 
perior activity of the purchasers. It is, therefore, not sur- 
prising, that a maximum of price on commodities should ag- 
gravate their scarcity. 

A law, that simply fixes the price of things at the rate they 
would naturally obtain, is merely nugatory, or serves only to • 
alarm producers and consumers, and consequently to derange 
the natural proportion between the production and the de- 
mand; which proportion, if left to itself, is invariably established 
in the manner most favourable to both. 

Hope, fear, malevolence, benevolence, in short, every hu- 
man passion or virtue may influence the scale of price. But it 
is the province of moral science to estimate the intensity of 
their effect upon actual price in every instance, which is the 
only thing we are here to attend to. Neither need we advert 
to the operation of the causes of a nature purely political, that 
may operate to raise the price of a product above the degree 
of its real utility. For these are of the same class with actual 
robbery and spoliation, which come under the department of 
criminal jurisprudence, although they may intrude themselves 
into the business of the distribution of wealth. The functions 
of national government, which is a class of industry, whose°re- 
sult or product is consumed by the governed as fast as it is 
produced, may be too dearly paid for, when they get into the 
hands of usurpation and tyranny, and the people be compelled 
to contribute a larger sum than is necessary for the main- 
tenance of good government. This is a parallel case to that of 
a producer without competitors, whether he have got rid of 
them by force, or by accidental circumstances. He may raise 
his product to what price he will, even to the extreme limit 
of the consumer's ability, if his monopoly be seconded by au- 
thority. But it is the province of the statesman, and not of 
the political economist, to teach us how this evil may be 
avoided. In like manner, although it be the province of ethics, 
or of the knowledge of the moral qualities of man, to teach 
the means of ensuring the good conduct of mankind, in their 
mutual relations, yet, whenever the intervention of a super- 
human power appears necessary to effect this purpose, those 
who assume to be the interpreters of that power must be paid 
for their service. If their labour be useful, its utility is an im- 
material product, which has a real value; but, if mankind be 
no-wise improved by it, their labour, not being productive ot 



244 ON DISTRIBUTION. book ii. 

utility, that portion of the revenues of society, devoted to their 
maintenance, is a total loss; a sacrifice without any return. («) 
With the most earnest wish to confine myself within my 
subject, it is impossible to avoid sometimes touching upon the 
confines of policy and morality, were it only for the purpose 
of marking out their points of contact. 



CHAPTER II. 



OF THE SOURCES OF REVENUE. 

It has been shown in Book I. , that products are raised by 
the productive means at the command of mankind, that is to 
say, by human industry, capital, and natural powers and agents. 
The products thus raised form the revenue of those possessed 
of these means of production, and enable them to procure such 
of the necessaries and comforts of existence, as are not 
furnished gratuitously, either by nature, or by their fellow 
creatures. 

The exclusive right to dispose of revenue is a consequence 
of the exclusive right, or property, in the means of produc- 
tion; and such of them, as are not the subject of human appro- 
priation, are not either items of productive means, or sources 
of revenue; they form no part of human wealth, which im- 
plies appropriation and exclusive possession; for there is no 
such tnmg as wealth, unless where property is known and 



(a) A national church is a human institution, whatever a priesthood may 
advance to the contrary. It is but a human means of promoting' national 
morality; and its efficacy to that end is the measure of its utility, which 
must at all times determine the propriety of continuing, or remodelling-, 
or absolutely discarding it. Hence the absurdity of assigning to such an 
establishment an invariable ratio of the national produce. We learn, that 
the whole surplus revenue of Egypt, in former times, was in the hands of 
the ecclesiastics; we must by no means conclude, that it was wrongfully 
SO; for possibly the business of promoting national morality may have been 
so urgent, as to have required the whole of that surplus. The efficacy of 
the peculiar institution is another thing; perhaps the state of human 
knowledge for the time being may have admitted of no alternative. Hence 
the impolicy, in Catholic countrieSj of continuing to the priesthood a scale 
of revenue which may have been not too high in the ages of intellectual 
darkness. Hence, hkewise, the impolicy, in any state, of upholding a na- 
tional ecclesiastical establishment, which the prejudices of the majority re- 
probate so strongly, as to set up a rival institution; as in Ireland. A double 
institution is thereby maintained, whereof one part is over-salaried by the 
state, without any benefit to national morality; and the other part is under- 
paid by individuals, with much less benefit than is practicable. T. 



CHAP. II. ON DISTRIBUTION. 245 

established, and where possession is both acknowledged and 
secured. 

The origin or the justice of the right of property, it is un- 
necessary to investigate, in the study of the nature, and pro- 
gress of human wealth. Whether the actual owner of the soil, 
or the person from whom he derived its possession, have ob- 
tained it by prior occupancy, by violence, or by fraud, can 
make no difi'erence whatever in the business of the production 
and distribution of its product or revenue. 

Perhaps it is scarcely necessary to remark, that property in 
that class of productive means, which has been called human 
industry, and in that distinguished by the general name of 
capital, is far more sacred and indisputable, than in the re- 
maining class of natural powers and agents. The industrious 
faculties of man, his intelligence, muscular strength, and dex- 
terity, are peculiar to himself and inherent in his nature. — 
And capital, or accumulated produce, is the mere result of hu- 
man frugality and forbearance to exercise the faculty of con- 
suming, which, if fully exerted, would have destroyed pro- 
ducts as fast as they were created, and there never could have 
been the existing property of any one; wherefore, no one else, 
but he who has practised this self-denial, can claim the result 
of it with any show of justice. Frugality is next of kin to the 
actual creation of products, which confers the most unquestion- 
able of all titles to the property in them. 

These several sources of production are some of them alien- 
able, as land, implements of art, &c.; and some inalienable, 
as personal faculties. Some also are consumable, as are all 
the items of floating (a) capital; others, inconsumable, as land. 
Some, too, there are, that are neither alienable nor consumable, 
yet are capable of destruction; as the human faculties, intel- 
lectual and corporeal, which vanish with human existence. 

Such as are capable of consumption, as, for instance, the 
floating values, wnereon production expends its energies, may 
be consumed either in such manner as to occasion a re-pro- 
duction, in which case they will still constitute a part of the 
means of production; or in such manner as to yield no further 
production, in which case they cease to form any part of 
those means, and are devoted to pure destruction, more or 
less rapid. 

Although revenue, as well as the sources of production, is a 
constituent part of individual wealth, yet no one is reputed 
to reduce his fortune by the consumption of his revenue only, 
provided that he does not encroach upon his productive means; 
because revenue is a regenerating product, whereas the means 



(a) Capitaux nobiliaires, which has been rendered floating capital, wherein 
are comprised all products, which the English law terms personal chattels, 
and which are sometimes called moveables, although some of these are of 
very slow consumption, as diamonds and precious stones. T. 



246 ON DISTRIBUTION. book ii. 

of production, so long as they continue to exist, are a constant 
and perpetual source of new products. 

The current value of these appropriable sources of produc- 
tion is established on the same principles, as that of all other 
objects; that is to say, by the conflicting influence of supply 
and demand. The only remark that need be made upon it is, 
that the demand does not originate in the enjoyment antici- 
pated from the immediate use of the particular source; for a 
field or an implement of trade yield to the owner no direct en- 
joyment, which is capable of estimation; their value has re- 
ference to the value of the product they are capable of raising, 
which itself originates in the utility of that product, or the 
satisfaction it may be capable of affording. 

With regard to those sources, that are inalienable, as are the 
human faculties of mind and body, they can never be the sub- 
ject of actual exchange, and their value is a matter of mere 
mental estimation, grounded upon the value they may be capa- 
ble of producing. Thus, the productive means of this descrip- 
tion, which yield to an artisan the wages of ^ fr. a day, or of 
lOOOyr. a year, may be reckoned equivalent to a vested capital 
yielding an equal annual revenue, (a) 

And now that we have taken this general and cursory view 
of the sources of production and of revenue in the aostract, 
we may enter upon a more minute analysis of their nature, 
which will lead us into the labyrinth of the science of Political 
Economy, and furnish us with a clue to some of its most in- 
tricate windings. 

The immediate result of these sources is not, strictly speak- 
ing, a product, but a productive service that helps us to a pro- 
duct. Products should, therefore, be considered as the result 
of an interchange of productive service on the one side, and 
of actual products on the other, subsequently to which, revenue 
appears for the first time in the shape of products; and these 
again may be exchanged for other products, into which latter 
form the same revenue will then be converted. 

The conception of this matter will be rendered clearer by a 
practical illustration. A piece of arable land yields an annual 
product, say of 300 setters of wheat, whereof 200 set., more 
or less, may be considered as resulting from the agency of the 
capital and industry employed in its cultivation, and the re- 
maining 100 set. as resulting from the natural productive pow- 
ers of the land. The revenue, yielded by the land to the pro- 
prietor, will have appeared first in the way of concurring pro- 
ductive service afforded by the object of property, the land; 



(a) They are of that value to the free individual, wherein they are vested. 
But, where human faculties are the subject of appropriation, as in the ex- 
treme case of negro slavery, or the less flagrant one of feudal vassalage, the 
value of the productive power vested in the appropriated human being is to 
the appropriator an equivalent to the surplus product, which that being is 
capable of affording, and not to the gross product. T. 



CHAP. II. ON DISTRIBUTION. 247 

which productive service will have been transferred or lent to 
the cultivator for the sum of 100 set. of wheat, and this will be 
the first act of exchange. If these 100 set. of wheat be con- 
verted into specie, either by the proprietor himself or by the 
cultivator on his behalf, and in consequence of a mutual ar- 
rangement, this specie will still be the same identical revenue, 
though under the, secondary form of money. 

This analysis will conduct us to a knowledge of the real 
value of revenue, which falls in with the general definition of 
value given in the preceding chapter, viz: the amount of other 
objects obtainable by exchange for the object of intended 
transfer. What, then, is the object of transfer, for which re- 
venue is given in exchange? why, the productive service of 
those means, that the receiver of revenue may be possessed of. 
And what is obtained by the primary act of exchange, which 
we designate production? why, products. Wherefore, the 
value of revenue is large in proportion, not to the value, but 
to the quantity of the product obtained, to the sum total of 
utility created. 

Thus we find, that the ratio of national revenue, in the ag- 
gregate, is determined by the amount of the product, and not 
by its value.* It is not so with individual revenue; because 
a variation in the relative value of different products will 
operate to swell that of one individual, or class, at the expense 
of another. 

Could each member of society live on the primary products 
whereof his revenue is composed, the relative degree of re- 
venue would, like that of nations, in the aggregate, depend 
upon the amount of the product, upon the sum of utility cre- 
ated, and not upon its exchangeable value. But, in a state of 
society at all elevated above barbarism, tliis is impossible; 
each individual consumes a much less quantity of his own pe- 
culiar product, than of those of other people, which he buys 
with his own. The grand point, therefore, of individual im- 
portance to the producer is, the quantity of products not of 
his own creation, which he may be able to procure with his 
own productive means, or with the products created by their 
agency. Suppose, for instance, the land, capital, and personal 
faculties of a particular individual to be engaged in the culti- 
vation of saffron; as he will probably himself consume little 
or no saffron, his revenue will consist of such other objects, as 
his annual crop of saffron can be exchanged for; and the ratio 
of that revenue will be elevated by a rise in the price of 
saffron; while that of the consumers of that article will be 
proportionately reduced to the full extent of the rise of its 

* Hence the futility of any attempt to compare the wealth of different 
nations, of France and England for instance, by comparison of the value of 
their respective national products. Indeed, two values are not capable of 
comparison, when placed at a distance from each other. The only fair way 
of comparing the wealth of one nation, with that of another is, by a moral 
estimate of the individual welfare in each respectively. 



248 ON DISTRIBUTION. book h. 

price. On the contrary, their revenue will be augmented in 
like manner by a fall of its price, to the prejudice of the re- 
venue of the grower. 

Every saving in the charges of production, that is to say, 
every saving in the productive agency exerted to raise the 
same product, is an increase of the revenue of the community 
to an equal extent; as, for example, the contrivance to raise 
as much upon one acre of land as before upon two, or to ef- 
fect with two days' labour, what before required as much as 
four; for the productive agency thus released may be directed 
to the increase of production, (a) And this accession of re- 
venue wall accrue to the individual benefit of the contriver, so 
long as the^contrivance can be confined to his own knowledge; 
but to that of consumers at large, as soon as the notoriety shall 
have awakened competition, and obliged him to limit his pro- 
fits to the actual charges of production. 

However revenue may be transformed by the various acts 
of exchange, commencing with the productive agency, which 
is the primitive exhibition of revenue, it remains the same in 
substance, until the moment of its ultimate consumption. The 
revenue yielded by an acre of arable land remains, in reality^ 
the same, both after its primary exchange, by the act of pro- 
duction, into the form of wheat, and after its secondary trans- 
formation into silver coin, even although the wheat have been 
consumed by the purchaser. But, as soon as the revenued in- 
dividual converts his silver coin into an object of consump- 
tion, and that object is simply consumed, the value of his re- 
venue thencefortn ceases to exist, and is destroyed and lost, 
although the silver coin, whose form it once assumed, continue 
in existence. It must not be imagined still to exist in the hands 
of the temporary holder of the coin, although lost to the re- 
ceiver of revenue; but is equally lost to mankind at large; for 
the actual holder of the coin must have obtained possession of 



(a) And will be so for the most part, though not entirely, wherever the 
members of the community have no other hope of subsistence, than from 
the product of their own productive means: for the whole surphis of re- 
venue thus created, is sure to go, in the end, to the appropriators of the 
natural sources of production j leaving those, whose productive means are 
merely personal, to employ them upon some other object, or upon an en- 
larged production of the same object. And this is a complete answer to 
the position of Sismondi and Malthus, that economy of human productive 
exertion makes the multiplication of unproductive consumers, not only pro- 
bable, but necessary. But where a poor-law or monastic establishment 
provides for the subsistence of the human agency thus rendered superfluous, 
there will probably be no increase of national revenue consequent upon a 
saving of productive agency; for the surplus labour is thereby released from 
the necessity of exertion in some other channel. With such institutions, 
the enlargement of productive power by machinery or otherwise may be 
very great, without any enlargement of national production, revenue, or 
wealth. T. 



CHAP. 11. ON DISTRIBUTION. 249 

it by the transfer of other revenue of his own, or of some 
source of revenue before in his own possession. 

When revenue is added to capital, it thenceforth ceases to 
be revenue, or, as such, to be capable of satisfying the wants 
of the proprietor; it can only yield an increased revenue, be- 
ing an item of productive capital, consumable in the manner 
of capital, that is to say, in such way as to yield a product in 
exchange and return for the value consumed. 

When capital or land, or personal service, is let out to hire, 
its productive power is transferred to the renter or adventurer 
in production, in consideration of a given amount of products 
agreed upon beforehand. It is a sort of speculative bargain, 
wherein the renter takes the risk of profit and loss, according 
as the revenue he may realize, or the product obtained by the 
agency transferred, shall exceed or fall short of the rent or 
hire he is to pay. Yet one revenue only can be realized; and, 
though a borrowed capital may yield to the adventurer an 
annual product of 10 per cent., instead of 5 per cent, which 
he pays in the shape of interest, yet the revenue of the capital, 
the productive service it affords, will not be 10 per cent; for 
in that gross product is included the recompense of the pro- 
ductive agency, both of the capital and of the industry that has 
turned it to account. 

The actual revenue of each individual is proportionate to 
the quantity of products at his disposal, being either the imme- 
diate fruit of his productive means, or the result of those trans- 
formations from its primitive state, which his revenue may 
have undergone, until it have assumed the shape of the ultimate 
object of his consumption. The ratio of that quantity, or of 
utility inherent in it, can only be estimated from its current 
price in the dealings of mankind. In this sense, the revenue 
of an individual is equal to the value derived from his produc- 
tive means; which value, however, is the greater, in respect 
to the objects of his consumption, in proportion to the cheap- 
ness of tnose objects, which augments his command of other 
than his own immediate products. 

In like manner, the revenue of a nation is the more consider- 
able, in proportion to the intensity of the value whereof it 
consists, i. e. of the value of its aggregate productive powers, 
and to its high relative degree to the value of the objects of 
external attamment. The value of productive agency must be 
high, even where that of products is low; for it should be al- 
ways recollected, that, since the intensity of value depends 
upon the quantity of objects obtainable in exchange, revenue, 
or, in other words, the agency of the national sources of pro- 
duction, is large, in proportion to the abundance and cheapness 
of the products derived from them. 

39 



250 ON DISTRIBUTION. book n. 



CHAPTER III. 



OP REAL AND RELATIVE VARIATION OF PRICE. 

The price of an article is the quantity of money it may be 
worth; current price, the quantity it may be sure of obtaining- 
at the particular place. Its locality is material, for the desire 
of a specific object varies in relation to the quantity procura- 
ble according to the locality. 

The price obtained upon the sale of an article represents all 
other articles procurable with that price. To say, that the 
price of an ell of broadcloth is AOfr., implies, that it is ex- 
changeable either for so much coined silver, or for so much of 
any other product or products as may be procurable with that 
sum. Money-price is selected for the purposes of illustration^ 
in preference to price in commodities at large, merely for 
greater simplicity; but the real and ultimate object of exchange 
IS, not money, but commodities. 

Price, in this sense, may be divided into buying-price and 
selling price; that is to say, the price given to obtain posses- 
sion of an object, and the price obtainable for the relinquish- 
ment of its possession. 

The price paid for every product, at the time of its original 
attainment or creation, is, the charge of the productive agency 
exerted, or the cost of its production.* Tracing upwards to 
this original price of a product, we unavoidably come to other 
products; for the charge of productive agency can only have 
been defrayed by other products. The daily wages of the 
weaver engaged in producing broad-cloth are products; they 
consist either of the articles of his daily subsistence, or of the 
money wherewith he may procure them; both which are equal- 
ly products. Wherefore the production, as well as the sub- 
sequent interchange of products, may be said to resolve itself 
into a barter of one product for another, conducted upon a 
comparison of their respective current prices. But there is 
one important particular, that requires the most assiduous at- 
tention, the neglect or oversight of which has led to abun- 
dance of error and misrepresentation, and has made the works 
of many writers calculated only to mislead the students in 
this science. 

An ell of broad-cloth, that has, in the production, required 
the purchase of productive agency at the price of AQfr., will 
have cost that sum in the manufacture; but if three-fourths 
only of that productive agency can be made to suffice for its 

* Vide Wealth of Nations ^ book i. c. 5. 



CHAP. HI. ON DISTRIBUTION. 251 

production; if, supposing one kind of productive agency only 
to be requisite, 15 instead of 20 days' labour of a single work- 
man be enabled to complete the product, the same ell of broad- 
cloth will cost but 30 jr. to the producer, at the same rate of 
wages. In this case, the current price of human productive 
agency will have remained the same, although the cost of pro- 
duction will have varied in the ratio of the difference between 
30 fr. and 40 /r. But, as this difference in the relation be- 
tween the cost of production and the current price of the pro- 
duct holds out a prospect of larger profit than ordinary in this 
particular channel, it naturally attracts a larger proportion of 
productive agency, the exertion of which, oy enlarging the 
supply, reduces again the current price to a level with the bare 
cost of production.* 

This kind of variation in the price of a product I shall call 
real variation of price, because it is a positive variation, in- 
volving no equivalent variation in the object of exchange, and 
both may, and actually does occur, without any cotempora- 
neous variation of the price, either of productive agency, of the 
products wherewith it is recompensed, or of those, for which 
the specific object of this real variation is procurable. 

It is otherwise with regard to the variation of price of pro- 
ducts already in existence one to another, without reference 
to their respective cost of production. When the wine of the 
last vintage, that a month before sold at 200 fr. the ton, will 
fetch no more than \50fr., money and all other objects of de- 
sire to the wine-vender have actually advanced in price to him; 
for the productive agency exerted in raising the wme, receives 
a recompense of but \50 Jr., instead oi 200 fr. in money, and 
of commodities in a like proportion, which is an abatement 
of 4; whereas, in the instance above cited, an equal amount of 
productive agency will receive an equal recompense in all 
other products; for a degree of agency, which has both cost 
and received SO fr., will be eaually well paid with one that 
has both cost and received 40 /r. 

In the former case, then, of a real variation, the wealth of 
the community will have received an accession; in the latter, 
of relative variation, it will have remained stationary; and for 
this plain reason; because, in the one case all the purchasers 
of cloth will be so much the richer, without the seller being 
any poorer; while, in the other, the gain of the one class will 
be exactly equipoised by the corresponding loss of the other. 
In the former case, a larger amount of products will be pro- 
cured with an equal charge of production, and without any 
alteration in the revenues of either buyers or sellers: there 

* The cost of production is what Smith calls the natural price of products, 
as contrasted with their current or market price, as he terms it. But it 
results from what has been said above, that every act of barter or exchange, 
among the rest even that implied in the act of production, is conducted with 
reference to current price. 



252 ON DISTRIBUTION. book ii. 

will be more actual wealth, more means of enjoyment, without 
any increased expenditure of productive means; the aggregate 
utility will be augmented; the quantum of produce procurable 
for the same price will be enlarged; all which are but varied 
expressions of the same meaning. 

But whence is derived this accession of enjoyment, this 
larger supply of wealth, that nobody pays for? From the in- 
creased command acquired by human intelligence over the 
productive powers and agents presented gratuitously by na- 
ture. A power has been rendered available for human pur- 
Koses, that had before been not known, or not directed to any 
uman object; as in the instance of wind, water, and steam- 
engines: or one before known and available is directed with 
superior skill and effect; as in the case of every improvement 
in mechanism, whereby human or animal power is assisted or 
expanded. The merit of the merchant, who contrives, by good 
management, to make the same capital suffice for an extended 
business, is precisely analogous to that of the engineer, who 
simplifies machinery, or renders it more productive. 

The discovery of a new mineral, animal, or vegetable, pos- 
sessed of the properties of utility in a novel form, or in a great- 
er degree of abundance or of perfection, is an acquisition of 
the same kind. The productive means of mankind were am- 
plified, and a larger product rendered procurable by an equal 
degree of human exertion, when indigo was substituted for 
woad, sugar for honey, and cochineal for the Tyrian dye. In 
all these instances of improvement, and those of a similar na- 
ture that may be hereafter effected, it is observable, that, 
since the means of production placed at the disposal of man- 
kind become in reality more powerful, the product raised al- 
ways increases in quantity, in proportion as it diminishes in 
value. We shall presently see the consequences of this cir- 
cumstance.* 

A fall of price may be general and affect all commodities at 
once; or it may be partial and affect certain commodities only; 
as I shall endeavour to explain by example. 

Suppose that, when stockings were made by knitting only, 
thread-stockings, of a given quality, amounted to the price of 
^ fr. the pair. Hence, we should infer, that the rent of the 
land whereon the flax was grown, the profits upon the labour 

* Within the last hundred years, the improvements of industry, effected 
by the advance of human knowledge, more especially in the department 
of natural science, have vastly abridged the business of production; butthe 
slow progress in moral and political science, and particularly in the branch 
of social organization, has hitherto prevented mankind from reaping the full 
benefit of those improvements. Yet it would be wrong to suppose they 
have reaped none at all. The pressure of taxation has indeed been dou- 
bled, tripled, or even quadrupled; yet population has increased in most 
countries of Europe; which is a sign, that a portion at least of the increase 
of produce has fallen to the lot of the subject; and the population, besides 
being augmented, is likewise better lodged, clothed, and conditioned, and 
1 believe better fed too, than it was a century a^o. 



CHAP. III. ON DISTRIBUTION. 253 

and capital of the cultivators, those of the flax-dresser and spin- 
ner, with those likewise of the stocking-knitter, amounted 
altogether to the sum of % fr. for each pair of stockings. Sup- 
pose that, in consequence of the invention of tlie stocking- 
inachine, ^ fr. will buy two pair of stockings instead of one. 
As the competition has a tendency to bring the price to a level 
with the cost of production, we may infer from this reduced 
price, that the outlay in land, capital, and labour, necessary to 
produce two pair of stockings, is still no more than Q fr.; thus, 
with equal means of production, the product raised is doubled 
in quantity. And what is a convincing proof that this fall is 
positive, is the fact, that every person, of what profession 
soever, may thenceforward obtain a pair of stockings with half 
the quantity of his own particular product. A capitalist, the 
holder of five per cent, stock, was before obliged to devote 
the annual interest of 120 /r. to the purchase of a pair of stock- 
ings; he now gives the interest of 60 Jr. only. A tradesman 
selling his sugar at 2 Jr. per lb. must before have sold 3lb. 
of sugar to buy a pair of stockings, now he need but sell lilb, : 
he therefore sacrifices in the purchase of a pair of stockings 
only half the means of production he formerly devoted to the 
acquisition of the same object. 

We have hitherto supposed this product alone to have fallen 
in price. Let us suppose two products to fall, stockings and 
sugar: that, by an improvement of commerce, lib. of sugar 
cost one Jr. instead of 2. In this case, all purchasers of sugar, 
including the stocking-maker, whose product has likewise 
fallen, will sacrifice, in the purchase of lib. of sugar, but half 
the productive means, which they before allotted for that 
purpose. 

The truth of this position may be easily ascertained. When 
sugar was at 2 Jr. per lb. and stockings at 6 Jr. the pair, the 
stocking-maker was obliged to sell one pair of stockings, be- 
fore he could buy 3lbs. of sugar; and, as the charges of pro- 
ducing this pair of stockings were 6 Jr., he in reality bought 
3lbs. of sugar at the price of 6 Jr. value in his own productive 
means; in like manner as the grocer bought a pair of stockings 
for 3lbs. of sugar, that is to say, in his case also, for 6 Jr. va- 
lue of his peculiar productive means. But when both these 
commodities have fallen to half their price, one pair only, or 
productive means equivalent to 3 Jr., would buy 3lbs. of su- 
gar; and 3lbs. of sugar, procurable at a charge of production 
amounting to 3 Jr., will suffice to purchase a pair of stockings. 
Wherefore, if two kinds of products, which we have set one 
against the other, and supposed to pass in exchange the one 
for the other, can both have fallen in price at the same time, 
are we not authorized to infer, that this fall is a positive fall, 
and has no reference or relation to the prices of commodities 
one to another? that commodities in general may fall at one 
and the same time, some more, some less, and yet that the di- 
minution of price may be no loss to any body? 



254 ON DISTRIBUTION. book ii. 

It is for this reason, that, in modern times, although wages 
stand in nearly the same relation to corn as they did four or 
five hundred years ago, yet the lower classes now enjoy many 
luxuries, that were then denied them; many articles of dress 
and household furniture, for instance, have suffered a real di- 
minution of value; and that the same individuals are more scan- 
tily supplied with others, as with butcher's meat and game,* 
because they have sustained a real increase of value. 

Every saving in the cost of production implies the procure- 
ment, either of an equal product by the exertion of a smaller 
amount of productive agency, or of a larger product by the 
exertion of equal agency, which are both the same thing; and 
it is sure to be followed by an enlargeinent of the product. It 
may be thought, perhaps, that this increase of production may 
possibly take place without any corresponding increase of de- 
mand; and, therefore, that the price current of the product 
may fall below the cost of its production, even on its reduced 
scale. But this is a groundless apprehension; for the fall of 
price tends so strongly to expand the sphere of consumption, 
that, in all the instances I have been able to meet with, the in- 
crease of demand has invariably outrun the increasing powers 
of an improved production, operating upon the same produc- 
tive means; so that ever}'^ enlargement of the power of pro- 
ductive agency has created a demand for more of that agency, 
in the preparation of the product cheapened by the improve- 
ment. 

Of this a striking example has been afforded by the invention 
of the art of printing. By this expeditious method of multi- 
plying the copies of a literary work, each copy costs but a 
twentieth part of what was before paid for manuscript; an equal 
intensity of total demand would, therefore, take off only twen- 
ty times the number of copies; but probably it is within the 
mark to say, that a hundred times as many are now consumed. 
So that, where there was formerly one copy only of the value 

* I find in the Hecherches of Diipre de Saint Maur, that in 1342, an ox 
was sold for from 10 to H livres tournois. Tiiis sum tlien contained 7 oz. 
of fine silver, which was worth about 28 oz. of the present day; and 28 oz. 
of our present money are coined into 171 /r. 30 c, which is lower than the 
price of an ordinary ox. A lean ox boug-ht in Poitou for 300 /r., and after- 
wards fatted in Lower Normandy, will sell at Paris for from 450 to 500 fr. 
Butcher's meat has, therefore, more than doubled in price since the 14th 
century; and probably most other articles of food likewise; and, if the la- 
bouring- classes had not at the same time been g-reatly benefited by the pro- 
gress of industry, and put in possession of additional sourcess of revenue, 
they would be worse fed than in the time of Philip of Valois. 

This may be easily explained. The growing revenues of the industrious 
classes have enabled them to multiply, and consequently to swell the de- 
mand for all objects of food. But their supply can not keep pace with the 
increasing demand, because, although the same surface of soil may be ren- 
dered more productive, it can not be so to an indefinite degree and the 
supply of food by the channel of external commerce, is more expensive 
than by that of internal agriculture, on account of the bulky nature of most 
of the articles of aliment. 



CHAP. in. ON DISTRIBUTION. 255 

of 60yr. of present money, there are now a hundred copies, 
the aggregate value of which is 300 /r., though that of each 
single copy be reduced to 1-20. Thus the reduction of price, 
consequent upon a real variation, does not occasion even a no- 
minal diminution of wealth.* 

On the other hand, and by the rule of contraries, as a real 
advance of price must always proceed from a deficiency in the 
product raised by equal productive means, it is attended by a 
diminution in the general stock of wealth; for the rise of price 
upon each portion does not counterpoise the reduction that 
takes place in the total quantity of the commodity; to say no- 
thing of the greater relative dearness of the object of consump- 
tion to the consumer, and of his consequent impoverishment 
in comparison. 

Suppose a murrain, or a bad system of management, to cause 
a scarcity of any kind of live stock, of sheep for instance, the 
price will rise, but not in proportion to the reduction of the 
supply; because, in proportion as they grow dearer, the de- 
mand will decrease. If there were but one fifth of the present 
number of sheep, it is very probable their price would advance 
to no more than double; so, that in place of five sheep, which 
might together be worth \00fr. at 20 fr. each, there would 
remain but one valued at 40 fr. The diminution of wealth 
in the article of sheep, notwithstanding the increased price, 
must therefore be computed at 60 per cent, which is consi- 
derably more than a moiety, t 

Thus, it may be affirmed, thatevery real reduction of price, 
instead of reducing the nominal value of produce raised, in 
point of fact, augments it; and that a real increase of price re- 
duces, instead of adding to the general wealth; to say nothing 
of the quantum of human enjoyment, which in the former case 
is multiplied, and in the latter abridged. Besides, it would be 
a capital error to imagine, that a real fall of price, or in other 
words, a reduction in the price paid to productive exertion, 
occasions as much loss to the producer as gain to the consum- 
er. A real depreciation of commodities is a benefit to the con- 
sumer, without curtailing the profits of the producer. The 
stocking-maker, who, for <o fr. manufactures two pair of stock- 
ings instead of one, gains as much upon that sum as if it were 
the price of a single pair. The landed proprietor receives the 

* Our data of the products of former times are too few to enable us to de- 
duce from them any precise result; but those at all acquainted with the sub- 
ject will see, that, whether over or under-stated, will make no difference 
in the reasoning. The statistic researches of the present generation will 
provide future ages with more accurate means of calculation, but will add 
nothing to the solidity of the principles upon which it must be made. 

f Of this nature is the evil effect of taxation, (especially if it be exorbi- 
tant,) upon the general wealth of the community, independently of its ef- 
fect upon the individuals assessed. The cost of production, and consequent- 
ly the real price of commodities, is aggravated thereby, and their aggregate 
value diminished. 



V 



256 ON DISTRIBUTION. book ii. 

same rent, although, by a better rotation of crops, the tenant 
should multiply and cheapen the produce of his land. When- 
ever, without additional fatigue to the labourer, means are de- 
vised to double the quantity of work he can perform, the ratio 
of his daily gains is not reduced, although his product is sold 
at a lower price.* 

This will serve to confirm and explain a maxim, which has 
been hitherto imperfectly understood, and even disputed by 
many writers, and sects of political reasoners; namely, that a 
country is rich and plentiful, in proportion as the price of 
commodities is low. t 

For argument's sake, I will put the matter in the most fa- 
vourable light for those who dispute this maxim, and suppose 
them to urge an extreme case; viz. that, by successive econo- 
mical reductions, the charges of production are at length re- 
duced to nothing; in which case, it is evident, there can no 
longer be rent for land, interest upon capital, or wages on la- 
bour, and, consequently, no longer any revenue to the pro- 

* I have met with persons, who iinag-ined themselves adding' to national 
wealth, by favouring the production of expensive, in preference to that of 
cheaper articles. In their opinion, it is better to make a yard of rich bro- 
cade than one of common sarsenet. They do not consider, that, if the 
former costs four times as much as the latter, it is because it requires the 
exertion of four times as much productive agency, which could be made to 
produce four yards of the latter, as easily as one of the former. The total 
value is the same; but society derives less benefit; for a yard of brocade 
makes fewer dresses than four yards of sarsenet. It is the grand curse of 
luxury, that it ever presents meanness in company with magnificence, (a) 

■\ Dupont de Nemours {Physiocratie. p. 117.) says, that " it must not be 
supposed, that the cheapness of commodities is advantageous to the lower 
classes; for the reduction of prices lessens the wages of the labourer, cur- 
tails his comforts, and affords him less work and lucrative occupation." But 
theory and practice both controvert this position. A fall of wages, occa- 
sioned solely by a fall the in price of commodities, does not diminish the com- 
forts of the labourer; and, inasmuch as the low price of wages enables the ad- 
venturer to produce at a less expense, it tends powerfully to promote the 
vent and demand for the produce of labour. 

Melon, Forbonnais, and all the partisans of the exclusive system, or ba- 
lance of trade, concur with the economists in this erroneous opinion; and 
it has been re-affirmed by Sismondi, in his Nouveaux Prin. d'Econ. Pol. liv. 
iv. e. 6.; where the lower price of products is treated as an advantage gain- 
ed by the consumer upon the producer, in despite of the obvious impossi- 
bility of any loss to the labouring or other productive classes, by a reduc- 
tion tantamount only to the saving in the cost of production. 



(a) This is by no means universally true. Luxury is a national evil, not 
where it originates in the surplus of individual wealth, and the natural de- 
sire of innocent, though perhaps puerile, gratification;- but where it is ex- 
cited by the profusions of a corrupt court, or the example of pampered fa- 
vourites and overpaid public functionaries. Where things are left to them- 
selves, it is certain that brocade will never be produced for home consump- 
tion, until the demand for articles of more general utility has been fully 
satisfied. T. 



CHAP. III. ON DISTRIBUTION. 257 

ductive classes. What then? Why then, I say, these classes 
would no long;er exist. Every object of human want would 
stand in the same predicament as the air or the water, which 
are consumed without the necessity of being either produced 
or purchased. In like manner as every one is rich enough to 
provide himself with air, so would he be to provide himself 
with every other imaginable product. This would be the very 
acmt of wealth. Political economy would no longer be a 
science; we should have no occasion to learn the mode of ac- 
quiring wealth; for we should find it ready made to our hands. 

Although there be no instance of a product falling to no- 
thing in price, and becoming worth no more than mere water, 
yet some kinds have undergone prodigious abatements; as fuel 
in those places where coal pits have been discovered; and 
such abatements are so many approximations to that imagina- 
ry state of complete abundance, I have just been speaking of. 

If different commodities have fallen in different ratios, some 
more, others less, it is plain they must have varied in relative 
value to each other. That which has fallen, stockings, for in- 
stance, has changed its value relatively to that which has not 
fallen, as butcher's meat; and such as have fallen in equal pro- 
portion, like stockings and sugar in our hypothesis, have vari- 
ed in real, though not in relative value. 

There is this difference between a real and a relative varia- 
tion of price; that the former is a change of value, arising from 
an alteration of the charges of production; the latter, a change, 
arising from an alteration of the ratio of value of one par- 
ticular commodity to other commodities. Real variations are 
beneficial to buyers, without injury to sellers; and vice versa; 
but in relative ones, what is gained by the seller is lost by the 
purchaser, and vice versa. A dealer, having in his warehouse 
100,000lbs. of wool at 1 fr. per lb., is ivorth 100,000 fr.; if, 
by reason of an extraordinary demand, wool should rise to 
2 fr. per lb., that portion of his capital will be doubled, but all 
goods brought to be exchanged for wool will lose as much in 
relative value as the wool will gain, A person in want of 
lOOlbs. of wool, who could before have obtained it by dispos- 
ing, say of 4 setiers of wheat valued at 100 fr., must now dis- 
pose of twice that quantity. He will lose the \00fr. gained 
by the wool-dealer; and the nation be neither enriched nor 
impoverished.* 

* The Earl of Lauderdale published in 1807, a work, entitled, "Re- 
searches on the Nature and Origin of public Wealth, and on the Causes which 
concur in its Increase,-" the whole reasoning of which is built on this errone- 
ous proposition, that the scarcity of a commodity, thoug'h it diminish the 
wealth of society in the agg'reg'ate, aug'ments that of individuals, by increas- 
ing- the value of that commodity in the hands of its possessors. Whence the 
author deduces the unsound conclusion, that national, differs in principle 
from individual wealth. He has not perceived, that, whenever a purchaser 
is obliged to make the acquisition by the sacrifice of a greater value, he 
loses just as much as the seller gains; and that every operation, designed to 
40 



^58 ON DISTRIBUTION. book ii. 

When sales of this kind take place between one nation and 
another, the nation, that sells the commodity, which has ad- 
vanced in relative price, gains to the amount of the advance, 
and the purchasing nation loses precisely to the same extent. 
Such a rise of price adds nothing to the general stock of 
wealth, existing in the world, which can only be enlarged by 
the production of some new utility, that may become the ob- 
ject of price or estimation; whereas, in other cases, one always 
loses what another gains: and so it is in all kinds of jobbing 
transactions, founded upon the fluctuation of prices one to ano- 
ther. 

In all probability, the time is not very distant, when the 
European states, awake at length to their real interest, will. re- 
nounce the costly rights of colonial dominion, and aim at the 
independent colonization of those tropical regions nearest to 
Europe; as of some parts of Africa. The vast cultivation of 
what are called colonial products, that would ensue, could not 
fail to supply Europe in the greatest abundance, and probably 
at most moderate prices. Such merchants as shall then have 
stock on hand, purchased at the old prices, certainly will 
make a loss upon that stock; but their loss will be a clear gain 
to the consumer, Avho will for a time enjoy this kind of pro- 
duce, at a price inferior to the charge of production; the mer- 
chants will gradually replace their dear-bought produce, by 
other of equal quality, raised with superior intelligence; and 
the consumer will then reap the advantage of superior cheap- 
ness and multiplied enjoyment, with no loss to any body; for 



procure this kind of benefit, must occasion to one party a loss, equivalent 
to the ^ain of another. 

He likewise refers this imaginary difference between the principle of 
public and of private wealth to this circumstance; that the accumulation of 
capital, wliich is an advantag-e to individual, is detrimental to national wealth, 
by obstructing- the consumption, whicli is the stimulus of industry. He has 
fallen into the very common error of supposing, that capital is, by accumu- 
lation, withdrawn from consumption; whereas, on the contrary, it is con- 
sumed, but in a reproductive way, and so as to afford the means of a per- 
petual recurrence of purchase, which can occur but once in the case of un- 
productive consumption. Vide Book III. infra. Thus it is, that a single 
error in principle, vitiates a whole work. The one in question is built up- 
on this unsound foundation; and, therefore, serves only to multiply, instead 
of reducing the intricacies of the subject.(a) 



{a) The error of Lauderdale is analagous to that of Sismondi and of 
Malthus; and arises from the notion, that an extension of productive power 
makes an extension of unproductive consumption necessary; whereas, it is 
thereby rendered possible, or at the utmost probable only. The state, as 
well as its subjects, may consume in a way conducive to the further exten- 
sion of productive power: and the state, like an individual, is powerful and 
wealthy, in proportion to the extent of the productive somxes in its posses- 
sion, and to the fertility of those sources. T, 



CHAP. IV. ON DISTRIBUTION. 259 

the merchant will both buy and sell cheaper; and human in- 
dustry will have made a rapid stride, and opened a new road 
to affluence and abundance.* 



CHAPTER IV. 



OS" NOMINAL VARIATION OP PRICE, AND OF THK PECULIAR 
VALUE OF BULLION AND OF COIN. 

In treating of the elevation and depression of the price of 
commodities, although value has been expressed in money, no 
notice has been taken of the value of money itself; which, to 
say the truth, plays no part in real, or even in relative varia- 
tion of the price of other commodities. One product is always 
ultimately bought with another, even when paid for in the first 
instance in money. When the price of wool is doubled, it is 
purchased with twice the quantity of every other commodity, 
whether the exchange be made directly, or through the inter- 
mediate agency of money. The baker, who could have bought 
lib. of wool with 6lbs. of bread, or, with its price in money, 
say \fr., will be obliged to sacrifice 12lbs. of bread to obtain 
the S/r. necessary to purchase lib. of wool at its advanced 
price. But, if it be proposed to compare together the relative 
value, not of stockings, meat, sugar, wool, bread, &c., but of 
any one of those articles with that of money itself, we shall 
find, that money, like all other commodities, may undergo, 
and often has, in fact, undergone a real variation; that is to say, 
a variation in the charges of its production; and a relative one, 
that is to say, a change of value, in comparison with other 
products. 

Since the discovery of the American mines, silver, having 
fallen to about a fourth of its former value, has lost three- 
fourths of its relative value to all other products, whose price 
has, meanwhile, remained stationary; as to that of corn, for 
instance; consequently, one must give 4oz. of silver for 1 
setier of wheat, which, in the year 1500, was to be had for 
loz. or thereabout. A commodity, which, since that period, 
may have fallen to half its price, while silver was falling to 
one quarter, will, therefore, have doubled its relative value to 

* The vast means at the disposal of Napoleon mig'ht have been success- 
fully directed to this grand object, and then he would have left the reputa- 
tion of having contributed to civilize, enrich, and people the world; and not 
of having- been its scourge and devastator. When the Barbary shore shall . 
be lined with peaceful, industrious, and polished inhabitants, the Mediterra- 
nean will be an immense lake, furrowed by the commerce of the wealthy 
nations, peopling its shores on every side. 



260 ON DISTRIBUTION. book ii. 

silver, for this commodity then cost loz. , and would now be 
worth 4oz. of silver, had it not fallen itself in value; but having 
itself lost one half its value, it is sold for but 2oz. ; that is to 
say, for twice as much silver as at the former period. 

Such is the effect of real and of relative variation in the 
price of silver. But, independently of these variations, there 
have been vast alterations in the denomination given, at dif- 
ferent periods during the interim, to the same quantity of pure 
metal, which should make us place very little reliance on the 
accuracy of our estimate of real and rektive variation. 

In 1514, an ounce of silver would purchase 1 setter oi wheat, 
which is now worth 4oz.; this was a relative variation of sil- 
ver to wheat. This quantity of silver then was denominated 
30 sous;* and, had the same quantity of silver still preserved 
the same denomination, 4oz. would now be called 120*. or 
6 Jr. Thus, wheat at 6 Jr. the setier would have risen in re- 
lation to silver, or silver have fallen in comparison with wheat. 
There would, however, have been no nominal \aviai\on. But 
4oz. of silver are now denominated 24//*. instead of 6//".; so 
that there has been a nominal, as well as a relative variation, 
— a mere verbal alteration. The real and relative variation 
has been in the ratio of 4 to 1 ; but the nominal value of money 
has declined in the ratio of 16 to 1 since 1514. 

It is obvious, therefore, that one can not form an idea of the 
value of a commodity from its estimate of money price, ex- 
cept during a space of time, and within a space of territory, in 
which neither the denomination of the coin, nor the value of 
its material, has undergone any change; else the valuation will 
be merely nominal, and convey no fixed idea of value what- 
ever. To say that the setier of wheat sold for 30 sous in 
1514, without explaining the then value of 30 sous, is giving 
us a price, that conveys either no idea at all, or a fallacious 
one if it be meant to affirm, that the setier of wheat was then 
worth 30 sous of present money. In comparing values, the 
denomination of coin is useful only inasmuch as it designates 
the quantity of pure metal contained in the sum specified. It 
may serve to denote the quantity of the metal; but can never 
serve as an index of value at any distance of time, or of place. 

It is scarcely necessary to point out the effects of an altera- 
tion in the quantity of metal, to which a fixed denomination 
is given, upon national and individual property. Such an ex- 
pedient can neither increase nor diminish the real, or even the 
relative value, either of the metal or of any other commodity. 
If loz. of silver be struck into two crowns instead of one, two 
crowns will be paid wherever one was given before; that is to 
say, loz. of silver will be given in either case; so that the 
value of silver will not have varied. But, when a sale has 
been made on credit for a given time, and payment stipulated 

* Traitc Histmnqu< , Leblanc; and Essai sur les Momiaies, by Dup-e 
de Saint Maur. 



CHAP. IV. ON DISTRIBUTION. 261 

in crowns, the seller may be liable to receive i oz. in each 
crown, instead of loz. according to the intention of the con- 
tracting parties. This transfer of the old denomination to a 
different portion of metal will, therefore, unjustly benefit the 
one party, to the injury of the other. For every profit to one 
individual is a loss to another, unless it arise from actual pro- 
duction, or from greater economy in the charges of produc- 
tion, which is equivalent to actual production. 

With regard to the peculiar and inherent value of bullion or 
of money, it originates, like that of all other commodities, in 
the uses to which it is applicable, as we have before observed. 
The degree of that value is greater or less, according as its use 
is more or less extensive, its employment more or less neces- 
sary, and its supply more or less abundant. 

Gold and silver, though the most common materials of mo- 
ney, can not act as such while in an uncoined state; they are 
then not money, but the raw material of money. In the pre- 
sent condition of society, every individual can not turn bullion 
into coin at his pleasure; and, therefore, coin may be of con- 
siderably higher value than bullion of the same standard of 
weight and quality, if the demand for coin be more urgent 
than the demand for bullion. But bullion can never be per- 
ceptibly higher in value than coin of equal weight and quality; 
because the latter may be readily converted into the former. 
The reason why coin so seldom much exceeds bullion in value 
is, that the avidity of governments, which are monopolists of 
the business of coinage, to profit by the difference between 
coin and bullion, has led them into the error of over-stocking 
the market with their manufacture of coin. Thus it is, that 
coin is never depressed in value below, and rarely much ele- 
vated above bullion. Wherefore, the detail of the circum- 
stances, that have hitherto been, or may hereafter be, the oc- 
casion of variations in the intrinsic value of gold or silver bul- 
lion, will serve at the same time to explain the variations of 
their value in the peculiar character of money. 

It has already been noticed,* that the ten-fold supply of 
those metals, poured into the market in consequence of the 
discovery of America, did not effect a corresponding reduction 
of their value to -"^ of what it had before been. For the de- 
mand for them was at the same period greatly enlarged by the 
contemporaneous increase of commerce, manufacture, and 
luxury. All the leading states of Europe had before been 
wholly destitute of industry: the circulation of products, 
whether as capital or for mere consumption, was very trifling 
in amount. Industry and productive energy made a sudden 
and simultaneous effort all over Europe; and the commodity 
employed as the material of money, the agent of exchange, 
could not but become more in demand, upon the greater ex- 
tent and frequency of mutual dealings. About the same time, 

* Supra, Book I. chap. 21. sect. 7. 



262 ON DISTRIBUTION. book ii." 

the new route to the Eastern ocean, by rounding the Cape of 
Good Hope, was discovered, and drew abundance of adven- 
turers into that direction; the products of the East obtained a 
more general consumption; but Europe, having no other pro- 
ducts of her own to offer in exchange, was compelled to give 
the precious metals, of which India absorbed an immense 
quantity. Nevertheless, the multiplication of products tended 
to the increase and diffusion of wealth; mere higlers grew up 
into opulent merchants, and the fishing towns of Holland al- 
ready reckoned amongst their citizens individuals worth a 
million oi francs. The costly objects, that none but princes 
could before aspire to possess, became attainable by the com- 
rnercial classes; and the increasing taste for plate and expen- 
sive furniture created a greater demand for gold and silver to 
be employed on those objects. Beyond all question, the value 
of those metals would have prodigiously advanced, had not 
the mines of America been then opportunely discovered. 

Their discovery completely turned the scales. The rapid 
increase of the use and demand for gold and silver was far 
more than counterbalanced by the increasing supply, which 
completely glutted the market. Hence the great reduction 
of their value, which has been before observed upon, and 
which would have been far greater still, but for the concur- 
rence of the circumstances just stated, whereby the value of 
silver, or its price in commodities at large, was checked in its 
fall, and limited to one-fourth, instead of being depressed in 
equal ratio with the increased supply, that is to say, to one- 
tenth. 

This counteracting force must have escaped the penetration 
of Locke, or he would not have said, that the ten-fold increase 
of silver, since the year 1500, necessarily raised the price of 
commodities in a ten-fold degree. The few instances he might 
have cited in support of his position, were by no means suffi- 
cient to establish its accuracy; for a far greater number and 
variety of products might be mentioned, for which, as well as 
for silver, the demand compared with the supply had increas- 
ed in the ratio of 2h to 1, between 1500 and the date of the 
work of Locke in question.* But, although this may be true 

* The increased intensity of the demand for silver compared with its sup- 
ply, consequent upon the discovery of America, is stated at 2 1-2 to 1, be- 
cause, but for this increase of demand, the ten-fold supply would have re- 
duced its value to one-tenth of what it had been previously to that event, 
and g-iven to 100 oz. the value of 10 oz. only. But 100 oz. were only re- 
duced to one-fourth of their former value, ^. e. to the value of 25 oz.; which 
bears to 10 oz. the ratio of 2 1-2 to 1. This could not have been the case, 
unless the demand for silver, compared with the supply, had advanced in 
that proportion. But the supply having- increased tenfold in the same in- 
terval, if we would find the ratio of the actual increase of the demand for 
silver, whether for the purposes of circulation, of luxury, or of manufacture, 
since the first discovery of the American mines, we must multiply 2 1-2 by 
10, which will give 25. And probably this estimate will not exceed the 
truth, although 25 times may seem a prodigious advance. However, it 



CHAP. IV. ON DISTRIBUTION. 263 

of some particular products, it may not be so of abundance of 
others, for some of which the demand has not advanced at all 
since 1500, while the supply of others has kept pace with the 
progressive demand, and consequently the ratio of their value 
remained stationary, with the exception of trifling temporary 
variations arising from causes of a nature wholly distinct; 
which, by the way, should teach us the necessity, in this 
science, of submitting insulated facts to the test of reasoning; 
for fact will not subvert theory, unless the whole of the facts 
applicable be taken into consideration, as well as the whole of 
the circumstances, that may vary the nature of those facts; 
which is hardly possible in any case. 

The writers of the Encyclopedic have fallen into the same 
error, in stating,* that a household establishment, wherein the 
silver plate should not have varied in quantity or quality from 
the middle of the sixteenth century to the present time, would 
be but one-tenth as rich in plate now as at the former period. 
Whereas, its comparative wealth would be reduced to one- 
fourth only; since, although the increase of supply has depress- 
ed that value to y o%, the increase of demand, on the other hand, 

has raised it to y/o"-''" 

It is deserving of attention, that the major part of the coin 
is in constant circulation, in the appropriate sense of the word, 
as defined above. In this respect it differs from most other 
commodities; for they are in circulation only so long as they 
are in the hands of the dealers, and retire from it as soon as 
transferred to the consumer. Money, even when employed 
as capital, is never desired as an object of consumption, but 
merely as one of barter; every act of purchase is an otfer of 
money in barter, and a furtherance of its circulation. The 
only part withdrawn from circulation is what may be hoarded 
or concealed, which is always done with a view to its re -ap- 
pearance. 

Gold or silver, in the shape of plate, embroidery, or jewel- 
lery, is in circulation only while in quest of, or in readiness 
for a purchaser; which it ceases to be, when it reaches the pos- 
session of the consumer. 

The general use of silver amongst all the civilized nations 

■would doubtless have been infinitely less considerable, but for the influx of 
supply from America? for the excessive dearness of silver would have greatly 
curtailed the use of it. Silver plate would probably be as rare as gold plate 
is now; and silver coin would be less abundant, because it would go further, 
and be of higher value. 

• Art. Monnaies. 

■\ If we are to believe Rlcardo, the increase of demand has no effect upon 
value which is determined solely by the cost of production. He seems not 
to have perceived, that it is demand that makes productive agency an ob- 
ject of appreciation. A diminution of the demand for silver bullion would 
throw all those mines out of work, of which the lower scale of price was not 
adequate to the charges of bringing the product to market. 



264 ON DISTRIBUTION. book ii. 

of the world, coupled with its great facility of transport, makes 
it a commodity of such extensive demand, that none but a 
very large influx of fresh supply can sensibly affect its value. 
Thus, when Xenophon, in his essay on the revenues of Athens, 
urges his countrymen to give more assiduous attention to the 
working of the mines of Attica, by the suggestion, that silver 
does not, like other commodities, decline in value with the 
increase in quantity, he must be understood to say, that it 
does not perceptibly decline. Indeed, the mines of Attica 
were too inconsiderable in their product, to influence the value 
of the stock of that metal then existing in the numerous and 
flourishing states upon the borders of the Mediterranean Sea, 
and in Persia and India; between all which and Greece the 
commercial intercourse was sufficiently active, to keep the 
value of silver stationary in the Grecian market. The driblet 
of silver, furnished by Attican metallurgy, was a mere rivulet 
trickling into an ocean of existing supply. It was impossible 
for Xenophon to foresee the influx of the American torrent, or 
to guess at the consequences of its irruption. 

If silver were, like corn and other fruits of the earth, an ob- 
ject of human food and sustenance, the enlargement of the 
sources of its supply would not have lowered its value; for the 
strong impulse of the human race, towards the multiplication 
of their species to a level with the means of subsistence, would 
have made the demand keep pace with the increase of supply. 
The tenfold multiplication of corn would be followed by a ten- 
fold increase of the demand for it; inasmuch as it would en- 
gender new mouths to consume it; and corn would maintain 
nearly the same average of relative value to other commodities. 

This will explain, why the variations of the value of silver 
are both slow in operation, and considerable in amount. Their 
slowness is owing to the universality of the demand, which 
prevents a moderate variation of supply from being sensibly 
felt; and their magnitude to the limited uses of the metal, which 
prevent the increase of demand from keeping pace with a ra- 
pid increase of supply. 

Silver has utility for the purposes of plate, furniture, and 
ornament, as well as for those of money; and is the more co- 
piously employed on those objects, in proportion to the degree 
of national wealth. Its use in the peculiar character of money 
is proportionate to the quantity of moveable and immoveable 
objects of property, that there may be to be circulated; where- 
fore, coin would be more abundantly required in rich than in 
poorer nations, were not the following circumstances to con- 
trol this general rule. 

1. The superior rapidity of circulation, both of money and 
commodities, in a state of national opulence, which makes a 
smaller quantity of money requisite, in proportion to the total 
of commercial dealings. The same sum in a rich country will 
effect perhaps ten successive operations of exchange in the 



CHAP. IV. ON DISTRIBUTION. 365 

same space of time, as one in a poor country.* Wherefore, 
the multiplication of commodities to be circulated is not ne- 
cessarily attended with a co-extensive increase of the demand 
for money. The business of circulation is extended; but the 
agent of circulation becomes more active and efficient. 

2. In a state of national opulence, credit is a more frequent 
substitute for money. In Chap. 22. of the preceding book, it 
has been shown, how a portion of the national money may be 
dispensed with by the employment of convertible paper, with- 
out any resulting inconvenience, t By this expedient, the use 
of metal money, and, consequently, the demand for silver for 
the purposes of money, is considerably diminished. Nor is 
convertible paper the sole expedient of substitution amongst 
an industrious and commercial people; every kind of private 
obligations and covenants, as well as sales on credit, transfers 
of money-credit, and even mere debtor and creditor accounts 
current, have an effect precisely analagous. 

Thus the necessity, and consequently the demand, for metal 
money never advances in equal ratio with the progressive mul- 
tiplication of other products; and it may be truly said, that the 
richer a nation is, the smaller is the amount of its coin, in 
comparison with other nations. 

Were the quantum of the supply alone to determine the ex- 
changeable value of a commodity, silver would stand to gold 
in the ratio of 1 to 45; for silver and gold are produced by 
metallurgy as 45 to l.f But the demand for silver is greater 
than for gold; its uses are both far more general and far more 
various; and thus its relative value is prevented from falling 
lower than 1 to 15. 

A portion of the demand for the precioiis metals is occasion- 
ed by their gradual destruction by use; for, although less sub- 
ject to decay than most products, they are still perishable in a 
certain degree; and doubtless the wear, though slow, must be 
considerable upon the immense quantity of gold and silver in 
constant use, as well in the character of money, as in the vari- 

* In a poor country, after a dealer has disposed of his wares, he is some- 
times a long while before he can provide himself with the returns he has in 
view; and, during the interval, the money -proceeds remain idle in his hands. 
Moreover, in a poor country, the investment of money is always difficult. 
Savings are slow and gradual, and are seldom turned to profitable account, 
until after a lapse of many years; so that a great deal of money is always 
lying by in a state of inaction. 

fRicardo, whom I look upon as the Individual in Europe the best ac- 
quainted with the subject of money, both in tlieory and in practice, has 
shown, in his Proposal for an economical and secure Currency, that, when 
the good government of the state may be safely reckoned upon, paper may 
be substituted for the whole of a metallic money; and a material possessed 
of no intrinsic value, by skilful management, be made to supplant a dear 
and cumbrous one, whose metaUic properties are never called into play by 
the functions of money. 

± Humboldt. Essai Pol. sur la Nouvelle Espagne, 8vo. torn, iv. p, 223, 
41 



266 ON DISTRIBUTION. book ii. 

ous objects of spoons, forks, goblets, dishes, and jewellery of 
all sorts. There is likewise a large consumption in plating 
and gilding. Smith asserts, that the manufactures of Birming- 
ham alone, in his time, worked up annually, as much as the 
worth of 50,000/. in these ways.* A further allowance must 
be made for the consumption of embroidery, tissue, book-bind- 
ing, &c. , all which may be set down as finally lost to other 
purposes. Add to this the buried hoards, the knowledge of 
which dies with the possessor, and the quantity lost by ship- 
wreck. 

If the nations of the world go on increasing their wealth, as 
most of them certainly have done for the last three centuries, 
their want of the precious metals will progressively advance, 
as well in consequence of the gradual wear, which will be 
greater in proportion to their increasing use, as of the multi- 
plication and increased aggregate value of other commodities, 
which will create a larger demand for the purposes of transfer 
and circulation. If the produce of the mines do not keep pace 
with the increasing demand, the precious metals will rise in 
value, and less of them be given in exchange for other pro- 
ducts in general. If the progress of mining shall keep pace 
with the advances of human industry, their value will remain 
stationary, as it seems to have done for the last two centuries; 
during which, the demand and supply have regularly advanced 
togetner.t And, if the supply of those metals outrun the pro- 

• Wealth of Nations, book i. c. 11. The manufacturing- consumption of 
Birmingham and other towns has greatly increased since the date of that 
•work. 

•j-We are assured by Humboldt, that the produce of the mines of Mexico 
has, in the last 100 years, been increased in the ratio of 110 to 25; also, that 
such is the abundance of silver ore, in the chain of the Andes, that, reckon- 
ing the number of veins either worked superficially, or not worked at all, 
one would be led to imagine, that Europe has hitlierto had a mere sample 
of their incalculable stores. Essai Fol. sur la JY. Espagne, 8vo. tom. iv. p. 
149. 

The very slight and gradual depi'eciation of gold and silver, effected by 
their immense and increasing annual supply, is one amongst many proofs of 
the rapid and general advance of human wealth, whereby the demand is 
made to keep pace with the supply. Yet I am inclined to think, that their 
value, after remaining nearly stationar_y for a century, has, within the last 
thirty years, begun again to decline. The setier of wheat, Paris measure, 
which was for a long time, on an average, sold for 4oz. of silver, has now 
risen to 4 l-2oz., and rents are raised upon every renewal of lease. All 
other things seem to be rising in the like proportion; which indicates, that 
silver is undergoing a depreciation of relative value. (1) 



(1) [It is here very justly remarked by the translator " that this may have 
been true about the period of the first treaty of Paris in 1814. Since then 
a variety of circumstances, he observes, have occuri-ed to turn the scale of 
variation to the opposite direction." Some of the circumstances enume- 
rated by him undoubtedly have had that effect; such, for example, as the 
diminished productiveness of the mines of Mexico and Peru, caused by the 



CHAP. V. ON DISTRIBUTION. 267 

gress of general wealth, as it seems to be doing at this mo- 
ment, they will fall in respect to other commodities at large. 
Metal-money will thereby be rendered more cumbrous; but 
the other uses of gold and silver will be more widely diffused. 
It would be a long and a tedious task to expose all the false 
reasoning and erroneous views, originating in the perpetual 
confusion of the different kinds of variation, that it has cost so 
much time to analyze and distinguish. It is enough to put 
the reader in a condition himself to discover their fallacy, and 
estimate the tendency of measures avowedly directed to influ- 
ence public wealth, by operating upon the scale of value. 



CHAPTER y. 



OF THE MANNER IN WHICH REVENUE IS DISTRIBUTED 
AMONGST SOCIETY. 

The causes, which determine the value of things, and which 
operate in the way described in the preceding chapters, apply 
without exception to all things possessed of value, however 
perishable; amongst others, therefore, to the productive ser- 
vice yielded by industry, capital, and land, in a state of pro- 
ductive activity. Those, who have at their disposal any one 
of these three sources of production, are the venders of what 
we shall here denominate productive agency; and the con- 
sumers of its product are the purchasers. Its relative value, 
like that of every other commodity, rises in direct ratio to the 
demand, and inverse ratio to the supply. 

The wholesale employers of industry, or adventurers, as 
they have been called, are but a kind of brokers between the 
venders and the purchasers, who engage a quantum of produc- 
tive agency upon a particular product, proportionate to the de- 
mand for that product.* The farmer, the manufacturer, the 

* It has been already seen, that the demand for every product is g-reat, 
in propoi'tion to the degree of its utiUty, and to tiie quanuiy of other pro- 
ducts possessed by others, and capable of being given in excliange. In other 
words, the utility of an object, and tlie wealth of the purchasers, jointly 
determine the extent of the demand. 



civil wars in those countries, and the increased demand for the precious 
metals, arising from the simultaneous return, on the part of Great Britain, 
the United States, Russia, and other nations to a metalHc medium, or to a 
paper currency convertible at pleasure into coin.] Ajierican Editob. 



268. ON DISTRIBUTION. book ii. 

merchant, is constantly occupied in comparing the price, which 
the consumer of a given product will and can give for it, with 
the necessary charges of its production; if that comparison de- 
termine him to produce it, he is the organ of a demand for all 
the productive agency applicable to this object, and thus 
furnishes one of the bases of the value of that agency. 

On the other hand, the agents of production, animate and in- 
animate, land, capital, and human labour, are supplied in larger 
or smaller quantity, according to the action of the various mo- 
tives, that will be detailed in the succeeding chapters; thus 
forming the other basis of the value at which their agency is 
rated.* 

Every product, when completed, repays by its value the 
whole amount of productive agency employed in its comple- 
tion. A great part of this agency has been paid for before the 
entire completion of the product, and must have been advanced 
by somebody; other part has been remunerated on its com- 
pletion; but the whole is always paid for ultimately out of the 
value oif the product. 

By way of exemplifying the mode, in which the value of a 
product is distributed amongst all that have concurred in its 
production, let us take a watch, and trace from the commence- 
ment, the manner in which its smallest parts have been pro- 
cured, and in which their value has been paid to every one of 
the infinite number of concurring producers. 

In the first place we find, that the gold, copper, and steel, 
used in its construction, have been purchased of the miner, 
who has received in exchange for these products, the wages of 
labour, interest of capital, and rent paid to the landed pro- 
prietor. 

The dealers in metal, who buy of the original producer, re- 
sell to those engaged in watch-making, and are thus reimbursed 
their advance, and paid the profits of their business into the 
bargain. 

The respective mechanics, who fashion the difierent parts 
whereof a watch is composed, sell them to the watchmaker, 
who, in paying them, refunds the advance of their previous 
value, together with the interest upon that advance; and pays, 
besides, the wages of labour hitherto incurred. This very 
complex operation of payment may be effected by a single 



• In digesting the plan of this work, I hesitated for a long time, whether 
or no to place the analysis of value before that of production; to explain 
the nature of the quality produced, before entering upon the investigation 
of the mode of its production. But it appeared to me, that to make the 
foundation of value int elligible, it was necessary to have a previous know- 
ledge of wherein the costs of production consist; and for that purpose, to 
have a just and enlarged conception of the agents of production, and of the 
service they are capable of yielding. 



CHAP. V. ON DISTRIBUTION. 269 

sum, equal to the aggregate of those united values. In the 
same way, the watchmaker deals with the mechanics that 
furnish the dial plate, the glass, &c., and such ornaments as 
he may think fit to add, — diamonds, enamel, or any thing he 
pleases. 

Last of all, the individual purchaser of the watch for his 
own use refunds to the watchmaker the whole of his advances, 
together with interest on each part respectively, and pays him 
besides, a profit upon his personal skill and industry. 

We find, then, that the total value of the watch has been 
shared amongst all its producers, perhaps long before it was 
finished; and those producers are much more numerous than 
I have described, or than is generally imagined. Among 
them, probably, may be found the unconscious purchaser him- 
self, who has bought the watch, and wears it in his fob. For 
who knows but he may have advanced his own capital to a 
mining adventurer, or a dealer in metal; or to the director of 
a large factory; or to an individual who acts himself in none 
of these capacities, but has underlent to one or more such 
persons a part of the funds he has borrowed at interest from 
the identical consumer of the watch? 

It has been observed, that it is by no means necessary for 
a product to be perfected for use, before the majority of its 
concurring producers can have been reimbursed that portion 
of value they have contributed to its completion; in a great 
many cases, these producers have even consumed their equi- 
valent long before the product has arrived at perfection. — 
Each successive producer makes the advance to his precursor 
of the then value of the product, including the labour al- 
ready expended upon it. His successor in the order of pro- 
duction, reimburses him in turn, with the addition of such 
value as the product may have received in passing through 
his hands. Finally, the last producer, who is generally the 
retail dealer, is compensated by the consumer for the aggre- 
gate of all these advances, plus the concluding operation per- 
formed by himself upon the product. 

The whole revenues of the community are distributed in 
one and the same manner. 

That portion of the value produced, which accrues in this 
manner to the landed proprietor, is called the, profit of land;' 
which is sometimes transferred to the farmer, in consideration 
of a fixed rent. 

The portion assigned to the capitalist, or person making 
the advances, however minute and for however short a pe- 
riod of time, is called the profit of capital; which capital is 
sometimes lent, and the profit relinquished on condition of a 
stipulated interest. 

The portion assigned to the mere mechanic or labourer is 



270 ON DISTRIBUTION. book ii. 

called the profit of labour; which is sometimes relinquished 
for a fixed salary.* («) 

Thus, each class receives its respective share of the total 
value produced; and this share composes its revenue. Some 
classes receive their share piecemeal, and consume as fast as 
they receive it; and these are the most numerous, for they 
comprise most of the labouring classes. The land-holder and 
the capitalist, who do not themselves turn their means to ac- 
count, receive their revenue periodically, once or twice, or 
perhaps four times a year, according to the terms of the con- 
tract with the transferee. But, in whatever manner a revenue 
may be derived, it is always analogous in its nature, and must 
originate in actual value produced. Whatever value an indi- 
vidual receives in satisfaction of his wants, without having 
either directly or indirectly concurred in production of some 
kind or other, must be wholly either a gratuitous gift or a 
spoliation; there is no other alternative. 

It is in this way, that the total value of products is distri- 
buted amongst the members of the community: I say, the 
/o^ffZ value, because such part of the whole value produced, as 
does not go to one of the concurring producers, is received by 
the rest. The clothier buys wool of the farmer, pays his 
workmen in every department, and sells the cloth, the result 
of their united exertion, at a price that reimburses all his ad- 
vances, and affords himself a profit. He never reckons as 
profit, or as the revenue of his own industry, any thing more 
than the net surplus, after deducting all charges and outgoings; 
but those outgoings are merely an advance of their respective 
revenues to the previous producers, which are refunded by 
the gross value of the cloth. The price paid to the farmer 
for his wool is the compound of the several revenues of the 
cultivator, the shepherd, and the landlord. Although the 
farmer reckons as net produce only the surplus remaining af- 
ter payment of his landlord and his servants in husbandry, 
yet to them these payments are items of revenue, — rent to the 

* In the above instance of the watch, many of the artisans are them- 
selves the adventurers in respect to their own industry; in which case 
their receipts are profits, not wages. If the maker exclusively of the chain 
himself buys tlie steel in its rude state, works it up, and sells the chain on 
his own account, he is the adventurer in respect to this particular part of 
the manufacture. A flax-spinner buys a few penny-worth of flax, spins it, 
and converts her thread into money. Part of this money goes to the pur- 
chase of more flax; this is her capital; another portion is spent in satisfying 
her wants; this is the joint profit of her industry, and her little capital, and 
forms her revenue. 



(a) Where slavery is tolerated, the slave is a mere machine, the reve- 
nue of which goes to the master, who defrays the charge of its mainte- 
nance. His productive agency is an object of appropriation, the recom- 
pense for which, like that of appropriated natural agency, is paid to the 
appropriator. T. 



CHAP. V. ON DISTRIBUTION. 271 

one and wages to the other; to the one, the revenue of his 
land, to the other, the revenue of his industry. The aggregate 
of all these is defrayed out of the value of the cloth, the 
whole* of which forms the revenue of some one or other, and 
is entirely absorbed in that way. 

Whence it appears, that the term net produce applies only 
to the individual revenue of each separate producer or adven- 
turer in industry; but that the aggregate of individual revenue, 
the total revenue of the community, is equal to the gross pro- 
duce of its land, capital, and industry. Which entirely sub- 
verts the system of the economists of the last century, who 
considered nothing but the net produce of the land as forming 
revenue, and therefore concluded, that this net produce was 
all that the community had to consume; instead of admitting 
the obvious inference, that the whole of what has been creat- 
ed, may also be consumed by mankind. t(«) 

If national revenue consisted of the mere excess of value 
produced above value consumed, this most absurd consequence 
would be inevitable; viz. that, where a nation consumes in 
the year the total of its annual product, it will have no reve- 
nue whatever. Is a man possessed of an income of 1 0,000 /r. 
a year to be said to have no revenue, because he may think 
proper to spend the whole of it? 

The whole amount of profit derived by an individual from 
his land, capital, and industry, within the year, is called his 
annual revenue. The aggregate of the revenues of all the 
individuals, whereof a nation consists, is its national revenue. % 

* Even that portion of the gross value, which is absorbed in the mainte- 
nance or restoration of the vested capital or machinery. If his works need 
repairs, which are executed b}' the proper mechanic, the sum expended in 
them forms the revenue of that mechanic, and is to the clothier a simple 
advance, which is refunded, like any other, by the value of the product 
when completed. 

•j- Part of the value created is due to natural agency, amongst which that 
of land is comprised. But, as stated above in Book I., land is treated as a 
machine or instrument, and its appropriator as the producer that sets it in 
motion; in like manner as the productive quality of capital is said to be the 
productive quality of the capitalist to whom it belongs. Mere verbal criti- 
cism is of little moment; when once the meaning is explained, it is the cor- 
rectness of the idea, and not of the expression, that is material. 

t The tei'm, national revenue, has been sometimes incorrectly applied to 
the financial receipts of the state. Individuals, indeed, pay tlieir taxes out 
of their respective revenues; but the sum levied by taxation is not revenue, 
but rather a tax upon revenue, and sometimes unhappily upon capital too. 



(a) Perhaps the real difference between the old economists and the new 
ones may not be so wide as some people have inriagined. They seem to 
have taken revenue in a more limited sense, than the new school has done; 
confining that denomination to that portion of the general produce, which 
remains as a sui'plus after defraying all tiie charges of human productive 



272 ON DISTRIBUTION. book ii. 

Its sum is the gross value of the national product, minus the 
portion exported; for the relation of one nation, is like that of 
one individual to another. The profits of an individual are 
limited to the excess of his income above his expenditure, 
which expenditure, indeed, form the revenue of other per- 
sons, but, if those other persons be foreigners, must be reck- 
oned, in the estimate of the revenue of the respective nations 
they may belong to. Thus, for instance, when a consign- 
ment of ribbons is made to Brazil to the amount of 10,000 /r. 
and the returns received in cotton, in estimating the resulting 
product to France from this act of dealing, the export made to 
Brazil in payment of the cotton must be deducted. Supposing 
the investment of ribbons to procure, say 40 bales of cotton, 
which, when they reach France, will fetch \2 ,000 fr. , 2,000 fr. 
only of that sum will go to the revenue of France, and the re- 
sidue to that of Brazil. 

Did all mankind form but one vast nation or community, it 
would be equally true in respect to mankind at large, as to 
the internal product of each insulated nation, that the whole 
gross value of the product would be revenue. But so long as 
it shall be necessary to consider the human race as split into 
distinct communities, taking each an independent interest, this 
circumstance must be taken into the account. Wherefore, a na- 
tion, whose imports exceed its exports in value, gains in reve- 
nue to the extent of the excess; which excess constitutes the 
profit of its external commerce. A nation that should export to 
the value of 100,000 /r. and import to the value of 120,000/r. 
wholly in goods, without any money passing on either side, 
would make a profit of 20,000/7"., in direct contradiction to 
the theory of the partisans of the balance of trade.* 

The voluminous head of perishable products consumed with- 
in the year, nay, often at the very moment of production, as 
in the case of all immaterial products, is nevertheless an item 
of national reveime. For what are they but so many values 
produced and consumed in the satisfaction of human wants, 
which are the sole characteristics of revenue? 

The estimation of individual and of national revenue is made 
in the same wa}^, as that of every collection of values, under 
whatever varieties of form; as of the estate of a deceased per- 
son. Each product is successively valued in money or coin. 
For instance, the revenues of France are said to amount to 
8,000,000,000 /r.; which by no means implies, that the com- 

* Their profit arises from increase of value effected by the transport upon 
both the export and the import, by the time they have reached their des- 
tination respectively. 



agency. Now it is evident, even by our author's own showing, that this 
whole" surplus is the product of appropriated natural agency; for the con- 
currence of capital is that of human agency; capital being the reserved pro- 
duct of past exertion. T. 



CHAP. V. ON DISTRIBUTION. 273 

merce of France produces a return of that amount in specie. 
Probably a very small amount of specie, or none at all, may 
have been imported. All that is meant by the assertion is, 
that the aggregate annual products of the nation, valued se- 
parately and successively in silver coin, make the total value 
above stated. The only reason of making the estimate in mo- 
ney is, the greater facility acquired by habit of forming an 
idea of the unchangeable value of a specific amount of money, 
than of other commodities. Were it not for that facility, it 
would be quite as well to make the estimate in corn; and to 
say, that the revenues of France amounted to 400,000,000 
hectolitres of wheat, which, at 20 fr. the hectolitre, would 
make precisely the same amount. 

Money facilitates the circulation from hand to hand of the 
values composing both revenue and capital; but is itself not 
an item of annual revenue, not being an annual product, but 
a product of previous commerce or metallurgy, of a date more 
or less remote. The same coin has effected the circulation of 
the former year, possibly of the former century, and has all 
the while remained the same in amount; nay, if the value of 
its material have declined in the interim, the nation will even 
have lost upon its capital existing under the form of money; 
just in the same way as a merchant would lose upon the fall 
of price of the goods in his warehouses. 

Thus, although the greater part of revenue, that is to say, of 
value produced, is momentarily resolved into money, the mo- 
ney, the quantity of silver coin itself, is not what constitutes 
revenue; revenue is value produced, wherewith that quantity 
of silver coin has been bought; and, as that value assumes the 
form of money but for a moment, the same identical pieces of 
money are made use of many times in the course of a year, 
for the purpose of paying or receiving specific portions of re- 
venue. Indeed, some portions of revenue never assume the 
form of money at all. The manufacturer, that boards his 
workmen himself, pays part of their wages in food; so that 
this far greater portion of the mechanic's revenue is paid, re- 
ceived, and consumed, without having once taken the shape 
of money, even foraninstant. In the United States of America, 
and in countries similarly circumstanced, it is not uncommon 
for the colonist to derive from the produce of his own estate, 
food, lodging, and raiment for the whole of his establishment; 
receiving and consuming his whole revenue in kind, without 
anv intervention of money whatsoever. 

I think I have said enough to warn the reader against con- 
founding the money, into which revenue may be converted, 
with revenue itself; and to establish a conviction that the re- 
venue of an individual, or of a nation, is not composed of 
the money received in lieu of the products of his or their crea- 
tion, but is the actual product or its value, which, by a pro- 
cess of exchans;e, may undoubtedly arrive at its destination in 
43 



274 ON DISTRIBUTION. book ii. 

the shape of a bag of crown pieces, or in any other shape 
whatsoever. 

No value, whether received in the shape of money or other- 
wise, can form a portion of annual revenue, unless it be the 
product, or the price of a product, created within the year: all 
else is capital, — is property passing from one hand to another, 
either in exchange, as a gift, or by inheritance. For an item of 
capital, or one of revenue, may be transferred or paid any how, 
whether in the shape of personal or real, of moveable or im- 
moveable property, or of money. But, no matter what shape 
it assume, revenue differs from capital essentially in this, that 
it is the result or product of a pre-existing source, whether 
land, capital, or industry. 

It has with some been a matter of doubt, whether the same 
value, which has already been received by one individual as 
the profit or revenue of his land, capital, or industry, can con- 
stitute the revenue of a second. For instance, a man receives 
100 crowns in part of his personal revenue, and lays it out in 
books; can this item of revenue, thus converted into books, 
and in that shape destined to his consumption, further con- 
tribute to form the revenue of the printer, bookseller, and all 
the other concurring agents in the production of the books, 
and be by them consumed a second time? The difficulty may 
be solved thus. The value forming the revenue of the first in- 
dividual, derived from his land, capital, or industry, and by 
him consumed in the shape of books, was not originally pro- 
duced in that form. There has been a double production: 1. 
of corn perhaps by the land and the industry of the farmer, 
which has been converted into crown pieces, and paid as rent 
to the proprietor: 2. of books by the capital and industry of 
the bookseller. The two products have been subsequently in- 
terchanged one for the other, and consumed, each by the pro- 
ducer of the other; having arrived at the particular form adapt- 
ed to their respective wants. 

So likewise of immaterial products. The opinion of the 
lawyer, the advice of the physician, is the product of their re- 
spective talents and knowledge, which are their peculiar pro- 
ductive means. If the merchant have occasion to purchase 
their assistance he gives for it a commercial product of his own 
converted into money. Each of them ultimately consumes 
his own revenue respectively, transformed into the object best 
adapted to his peculiar occasions. 



CHAP. VI. ON DISTRIBUTION. 275 



CHAPTER VI. 



OF WHAT BRANCHES OP PRODUCTION YIELD THE MOST LIBE- 
RAL RECOMPENSE TO PRODUCTIVE AGENCY. 

The aggregate value of a product, in the way just described, 
refunds to its different concurring producers the amount of 
their advances, with the addition in most cases, of a profit, 
that constitutes their revenue. But the profits of productive 
agency are not of equal amount in all its branches; some yield- 
ing but a very scanty revenue for the land, capital, or industry, 
embarked in them; while others give an exorbitant return. 

True it is, that productive agents always endeavour to di- 
rect their agency to thuse employments, in which the profits 
are the greatest, and thus, b}"- their competition have as much 
tendency to lower price, as demand has to raise it; but the 
efiects of competition can not always so nicely proportion the 
supply to the demand, as in every case to ensure an equal re- 
muneration. Some kinds of labour are scantily supplied, in 
countries where people are not accustomed to them; and capi- 
tal is often so sunk in a particular channel of production, that 
it can never be transferred to any other from that wherein it 
was originally embarked. Besides, the land may stubbornly 
resist that kind of cultivation, whose products are in the great- 
est demand. 

One can not trace the fluctuation of profit on each particular 
occasion. A wonderful change may be effected by a new in- 
vention, a hostile invasion, or a siege. Such partial circum- 
stances may influence or derange the operation of general 
causes, but can not destroy their general tendency. No dis- 
sertation, however voluminous, could be made to embrace 
every individual circumstance, that, by possibility may influ- 
ence the relative value of objects; but one may specify general 
causes, and such as have an uniform activity; thereby enabling 
every one, when the particular occasion may present itself, to 
estimate the effect produced by the operation of partial and 
transient circumstances. 

It may appear extraordinary at first sight, but will on en- 
quiry be found generally true, that the largest profit is made, 
not on the dearest commodities or upon those which are least 
indispensable, but rather on those, which are the most com- 
mon and least to be dispensed with. In fact, the demand for 
these latter is necessarily permanent; for it is stimulated by 
actual want, and grows with every increase of the means of 



276 ON DISTRIBUTION. book ii, 

production; inasmuch as nothing tends to increase population 
more, than providing the means of its subsistence. The de- 
mand for superfluities, on the contrary, does not expand with 
the increased power of producing them. An extraordinary 
run, which, by the way, can never take place but in large 
towns, may raise the current, considerably above the natural 
price; that is to say, above the actual cost of production; or 
a change of fashion may again depress it infinitely below that 
point. Superfluities are, after all, but objects of secondary 
want even to the rich themselves; and the demand for them 
is limited to the very small number of persons that can in- 
dulge in them. When a casual calamity obliges individuals 
to reduce their expenditure, when their revenues are cur- 
tailed by the ravages of war, by taxation, or by natural scar- 
city, the first items of retrenchment are always the articles of 
least necessary consumption. And this may serve, perhaps, 
to explain, why the productive agency directed to the raising 
of superfluities, is generally worse paid than that otherwise 
employed. 

I say generally, for it is possible enough that, in a great me- 
tropolis, where the demand for luxuries is more urgent than 
elsewhere, and the dictates of fashion, however absurd, more 
implicitly obeyed than the eternal laws of nature; where a 
man will, perhaps, be content to lose his dinner, so he may 
appear in the evening circle in embroidered rufiles, it is possi- 
ble, that in such a place the price of the gewgaws may some- 
times very liberally reward the labour and capital devoted to 
their production. But, except in such particular cases, ba- 
lancing one year's profits with another, and allowing for con- 
tingent losses, and it has been ascertained, that the adventurers 
in the production of superfluities make the most scanty profits, 
and that their workmen are the worst paid. The manufac- 
turers of the finest laces in Normandy and Flanders are a very 
indigent set of people; and at Lyons, the workers of gold- 
embroidery are absolutely clothed in rags. Not but that very 
considerable profits have occasionally been derived from such 
articles. A hat-maker has been known to make a fortune by 
a fancy hat; but, taking all the profits made on superfluities, 
and deducting the value of goods remaining unsold, or, though 
sold, never paid for, we shall find that this class of products 
afibrds, on the whole, the scantiest profit. The most fashion- 
able tradesmen are oftenest in the list of bankrupts. 

Commodities of general use are attainable by a greater num- 
ber of persons, and are in demand with almost every class of 
society. The chandelier is to be found only in the mansions 
of the rich; but the meanest cottage is furnished with the con- 
venience of a candlestick: the demand for candlesticks is, 
therefore, regular, and always more brisk than that for chande- 
liers; and, even in the most opulent country, the total value of 
the candlesticks is far greater than that of the chandeliers. 
The articles of human food are unquestionably those of 



CHAP. VI. ON DISTRIBUTION. 277 

most indispensable use; the demand for them recurs daily; 
and no occupations are so regular as those which minister to 
human sustenance. Wherefore, it is they that yield the most 
certain profit, notwithstanding the effects of brisk competition.* 
The butchers, bakers, and porkmen, of Paris, are pretty sure 
to retire with a fortune sooner or later; indeed, I have it from 
pretty good authority in such matters, that half the houses and 
real property sold in Paris and the environs, is bought up by 
tradesmen in those lines. 

It is on this account, that individuals and nations, who under- 
stand their true interest, unless they have very cogent reasons 
for acting otherwise, apply themselves in preference to the 
production of what tradesmen call current articles. Mr. 
Eden, who, in 1706, negotiated on the part of Great Britain 
the treaty of commerce concluded by M. de Vergennes, went 
upon this principle, in stipulating the free import of the com- 
mon English earthen-ware into France. " The few dozens of 
plates we m.ay sell you," said the English agent, "will be a 

f)Oor set-off against the magnificent services of Sevres porce- 
ain we shall take of you." This appeal to the vanity of the 
French agent was decisive. But, as soon as the English earth- 
en-ware was admitted, its lightness, cheapness, and conveni- 
ence and simplicity of form, recommended it to the most mo- 
derate establishments; its regular import, in a short time, 
amounted to many millions, and continued increasing every 
year until the war. The exportation of Sevres china, was a 
mere trifle in comparison. 

The scale for current articles, besides being more consider- 
able, is likewise more steady. A tradesman is never long in 
disposing of common linen shirting. 

The examples I have selected from the class of manufacture 
might easily be paralleled in the agricultural and commercial 
branches. A much larger value is consumed in lettuces than in 
pine apples, throughout Europe at large; and the superb shawls 
of Cachemere are, in France, a very poor object of trade, in 
comparison with the plain cotton goods of Rouen. 

Wherefore, it is a bad speculation for a nation to aim at the 
export of objects of luxury, and the import of objects of gene- 
ral utility. France supplies Germany with fashions and finery, 
which very few persons can make use of; and Germany makes 
the return in tapes and other merceries, in files, scythes, sho- 
vels, tongs, and other hardware of common use. But for the 
wines and oils of France, the annual product of a soil highly 

• T speak here of the adventurers, masters, or tradesmen; the mere la- 
bourer or journeyman benefits only, as it were, by re-action. The farmer, 
who is an adventurer in agriculture, employed in raising- products for hu- 
man sustenance, lies under disadvantages, that very much curtail his pro- 
fits. His concerns are too much at the mercy of his landlord, and of the 
financial exactions of public authority, to say nothing of the vicissitudes of 
seasons, to be very gainful on the average. 



278 ON DISTRIBUTION. book m 

favoured by nature, together with a few products of superior 
execution, France would derive less advantage from Germany 
than Germany from France. The same may be said of the 
French trade with the north of Europe, (a) 



CHAPTER VII. 

OF THE REVENUE OF INDUSTRY. 

SECTION I. 

Of the Profits of Industry in general. 

The general motives, which stimulate the demand of pro- 
ducts, have been above investigated.* When the demand for 
any product whatever, is very lively, the productive agency, 
through whose means alone it is obtainable, is likewise in brisk 
demand, which necessarily raises its ratio of value: this is true 
generally, of every kind of productive agency. Industry, ca- 
pital, and land, all yield, ceteris paribus, the largest profits, 
when the general demand for products is most active, affluence 
most expanded, profits most widely difiused, and production 
most vigorous and prolific. 

In the preceding chapter, we have seen, that the demand 
for some products is always more steady and active than for 

• Book I. c. 15. 



(a) The reasoning- of this whole chapter is superfluous and inconclusive. 
Where value is left to find its natural level, one class of productive agency- 
will, in the long run, be equally recompensed with another, presenting an 
equipoise of facility or difficulty, of repute or disrepute, of enjoyment or 
suflering, in the general estimation of mankind; this he states fully in the 
next chapter. If our author means here to say merely, that a large class of 
productive agency will receive a larger portion of the general product as its 
recompense or revenue, or that agency in permanent employ will obtain a 
regular and permanent recompense, he has taken a very circuitous mode of 
expressing a position, which is, indeed, almost self-evident. The grand di- 
vision of productive agency is into corporeal and intellectual; whereof the 
former is, on the average, the more amply rewarded by the rest of mankind, 
because the latter, in some measure, rewards itself. Thus, the profits of 
printing and bookselling are, on the whole, more liberal than those of au- 
thorship; because the latter is partly paid in self-gratification, in vanity, 
or conscious merit. T. 



CHAP. VII. ON DISTRIBUTION. 279 

others. Whence, we have inferred, that the agency directed 
to those particular products, receives the most ample remune- 
ration. 

Descending in our progress more and more into particular 
detail, we shall examine in this, and some following chapters, 
in what cases the profits of industry bear a greater or a less 
proportion to those of capital and of land, and vice versa; to- 
gether with the reasons wny certain ways of employing indus- 
try, capital, or land, are more profitable than others. 

To begin then, with the comparison of the relative profits 
of industry, to those of capital and land, we shall find these 
bear the highest ratio, where abundance of capital creates a 
demand for a great mass of industrious agency; as it did in 
Holland before the revolution. Industrious agency was very 
dearly paid there; as it still is in countries like the United 
States of America, where population, and consequently, the 
human agents of production, spite of their rapid increase, bear 
no proportion to the demands of an unlimited extent of land, 
and of the daily accumulation of capital by the prevalence of 
frugal habits. 

In countries thus circumstanced, the condition of man is 
generally the most comfortable; because those, who live in 
idleness upon the profits of their capital and land, are better 
able to live on moderate profits, than those who live upon the 
profits of their own industry only; the former, besides the 
resource of living on their capital, can, when they please, add 
the profits of industry to their other revenue; but the mere 
mechanic or labourer can not add at pleasure to the profits 
of his industry those of capital and land, of which he possesses 
none. 

Proceeding next to compare the profits of different branches 
of industrious agency one with another, we shall find them 
greater or less in proportion, 1st. to the degree of danger, 
trouble, or fatigue, attending them, or to their being more or 
less agreeable; 2dly. to the regularity or irregularity of the 
occupation; 3dly. to the degree of skill or talent that may be 
requisite. 

Every one of these causes tends to diminish the quantity of 
labour in circulation in each department, and consequently to 
vary its natural rate of profit. It is scarcely necessary to cite 
examples in support of propositions so very evident. 

Among the agreeable or disagreeable circumstances attend- 
ing an occupation, must be reckoned the consideration or con- 
tempt which it entails. Some professions are partly paid in 
honour. Of any given price, the more is paid in this coin, the 
less may be paid in any other, without reducing the ratio of 
price. Smith remarks, that the scholar, the poet, and the phi- 
losopher, are almost wholly paid in personal consideration. — 
Whether with reason or from prejudice, this is not entirely 
the case with the professions of a comic actor, a dancer, and 
innumerable others; they must, therefore, be paid in money 



280 ON DISTRIBUTION, book ii. 

what they are denied in estimation. ^^It seems absurd at first 
sight," says Smith, "that we should despise their persons, 
and yet reward their talents with the most profuse liberality. 
Whilst we do the one, however, we must of necessity do the 
other. Should the public opinion or prejudice ever alter with 
regard to such occupations, their pecuniary recompense would 
quickly diminish. More people would apply to them, and 
the competition would quickly reduce the price of their la- 
bour. Such talents, though far from being common, are by 
no means so rare as is imagined. Many people possess them 
in great perfection, who disdain to make this use of them; and 
many more are capable of acquiring them, if any thing could 
be honourably made by them.'* 

In some countries, the functions of national administration 
are requited at the same time with high honour and large emo- 
lument; but it is only so, where, instead of being open to free 
competition, like other occupations and professions, they are 
in the disposal of royal favour. A nation, awake to its true in- 
terest, is careful not to lavish this double recompense upon offi- 
cial mediocrity; but to husband its pecuniary bounty, where 
it is prodigal of distinction and authority. 

Every temporary occupation is dearly paid; for the labour- 
er must be indemnified as well for the time he is employed, as 
for that during which he is waiting for employment. A job 
coachmaster must charge more for the days he is employed, 
than may appear sufficient for his trouble and capital embark- 
ed, because the busy days must pay for the idle ones; any thing 
less would be ruin to him, Tne hire of masquerade dresses 
is expensive for the same reason; the receipts of the carnival 
must pay for the whole year. Upon a cross road, an inn- 
keeper must charge high for indifferent entertainment; for he 
may be some days before the arrival of another traveller. 

However, the proneness of mankind to expect, that, if there 
be a single lucky chance, it will be sure to fall to their pecu- 
liar lot, attracts towards particular channels a portion of in- 
dustry disproportionate to the profit they hold out. '■ In a per- 
fectly fair lottery,' says the author of the Wealth of Nations, 
' those who draw prizes ought to gain all that is lost by those who 
draw blanks. In a profession, where twenty fail for one that 
succeeds, that one ought to gain all that should have been gain- 
ed by the unsuccessful twenty. 't Now many occupations are 
far from being paid according to this rate. The same author 
states his belief, that, how extravagant soever the fees of coun- 
sellors at law of celebrity may appear, the annual gains of all 
the counsellors of a large town Dear but a very small propor- 
tion to their annual expense; so that this profession must, in 
great part, derive its subsistence from some other independent 
source of revenue. 

* Wealth of Nations, book i. c. 10. 
f Wealth of Nations, book i. c. 10. 



CHAP. VII. ON DISTRIBUTION. 281 

It is hardly necessary to state, that these several causes of 
difference in the ratio of profit may act all in the same, or each 
in an opposite direction; or that, in the former case, the effect 
is more intense; whereas, in the latter, the opposite action of 
one controls and neutralizes the other. It would be a waste of 
time to prove, that the agreeable circumstances of a profession 
may balance the uncertainty of its product: or that a business 
that does not furnish constant occupation, and is moreover at- 
tended with danger, must be indemnified by a double increase 
of salary. 

The last, and perhaps the principal cause of inequality in 
the profits of industry in general is, the degree of skill it may 
require. 

When the skill requisite to any calling, whether of a superi- 
or or subordinate character, is attainable only by long ana ex- 
pensive training, that training must every year have involved 
a certain expense, and the total outlay forms an accumulated 
capital. In such case, its remuneration includes, over and above 
the wages of labour, an interest upon the capital advanced in 
the training, and an interest higher than the ordinary rate; for 
the capital advanced has been actually sunk, and exists no longer 
than the life of the individual. It should, therefore, be calcu- 
lated as an annuity.* 

It is for this reason, that all employments of time and ta- 
lents, which require a liberal education, are better paid than 
those, which require less education. Education is capital 
which ought to yield interest, independent of the ordinary 
profits of industry. 

There are facts, it is true, that militate against this princi- 
ple; but they are capable of explanation. The priesthood is 
sometimes very ill paid;t yet a religion, founded upon very 

* Nay, even more than annuity interest on the sums spent in the educa- 
tion of the person who receives the salarj''; strictly speaking, it should be 
annuity interest upon the total sum devoted to the same class of study, 
whether it have or have not been made productive in its kind. Thus the 
aggregate of the fees of physicians ought to replace not only vi^hat has been 
spent in their studies, but, in addition, all the sums expended in the in- 
struction of the students, who may have died during their education, or 
whose success may not have repaid the care bestowed upon them; for the 
stock of medical industry in actual existence could never have been reared, 
witlioutthe loss of some part of the outlay devoted to medical instruction. 
However, there is little use in too minute attention to accuracy in the esti- 
mates of political economy, which are frequenty found at variance with 
fact, on account of the influence of moral considerations in the matter 
of national wealth, an influence tliat does not admit of mathematical estima- 
tion. The forms of algebra are therefore inapplicable to this science, and 
serve only to introduce unnecessary perplexity. Smith has not once had 
recourse to them, 

■j- 1 do not mean to include the superior orders of the clergy, whose bene- 
43 



232 ON DISTRIBUTION. book ii. 

complicated doctrines, and obscure historical facts, requires in 
its ministers a long course of study and probation, and such 
study and probation necessarily call for an advance of capital; 
it would seem requisite, therefore, for the continued existence 
of the clerical profession, that the salary of the minister should 
pay the interest on the capital expended, as well as the wages 
of his personal trouble, which the profits of the inferior clergy 
rarely exceed, particularly in catholic countries. It must, 
however, be ascertained, whether the public have not them- 
selves advanced this capital in the maintenance and education 
of clerical students at the public charge; in which case, the 
public advancing the capital may find people enough to exe- 
cute the duties for the mere wages of their labour, or a bare 
subsistence, especially where there is no family to be provided 
for. 

When, besides expensive training, peculiar natural talent is 
reuqired for a particular branch of industry, the supply is still 
more limited in proportion to the demand, and must conse- 
quently be better paid. A great nation will probably contain 
but two or three artists capable of painting a superior picture, 
or modelling a beautiful statue; if such objects, then, be much 
in demand, those few can charge almost what they please; and, 
though much of the profit is but the return with interest of 
capital advanced in the acquisition of their art, yet the pro- 
fits it brings leaves a very large surplus. (Z>) A celebrated painter, 
advocate, or physician, will have spent, of his own or relation's 
money, 30,000 yr., or 40,000 /r. at most, in acquiring the 
ability from which his gains are derived; the interest of this 
sum calculated as an annuity is but 4000yr. ; so that, if he 
make 30,000 fr. by his art, there remains an annual sum of 
26,000 y>\ which is wholly the salary of his skill and industry. 
If every thing affording revenue is to be set down as property, 

fices are exti-emely rich and well paid, though upon principles of state 
policy.(a) 



(a) In estimating the recompense of a national priesthood the total of its 
revenues, both in the higher and lower ranks, must be taken into the ac- 
count. The gambling propensity of mankind, and that proneness to ex- 
pect the lucky chances, which has been above adverted to, makes human 
industry always overflow those channels, in which there are some few 
great prizes, and an immensity of blanks; as in the church and the law, 
which have moreover the attraction of personal consideration, at least in 
the constitution of English society. T. 

(b) From vi^hich, however, is to be deducted the average loss on the ge- 
neral balance of less successful competitors in the same line. It does not ap- 
pear, that, in England at least, any allowance is to be made for personal 
consideration, which is seldom attached in a high ratio even to the greatest 
excellence in the department of pure art. These is no instance of a sculptor 
or a painter arriving at the honours of the peerage, which have been placed 
within the reach of successful commercial enterprise. T. 



CHAP. VII. ON DISTRIBUTION. 2S3 

his fortune at ten years' purchase may be reckoned 260,000/^., 
even supposing him not to have inherited a sol. 



SECTION II. 



Of the Profits of the Man of Science. 

The philosopher, the man who makes it his study to direct 
the laws of nature to the greatest possible benefit of mankind, 
receives a very small proportion of the products of that indus- 
try, which derives such prodigious advantage from the know- 
ledge, whereof he is at the same time the depositary and the 
promoter. The cause of his disproportionate payment seems 
to be, that, to speak technically, he throws into circulation, 
in a moment, an immense stock of his product, which is one 
that suffers very little by wear; so that it is long before opera- 
tive industry is obliged to resort to him for a fresh supply. 

The scientific acquirements, without which abundance of 
manufacturing processes could never have been executed, are 
probably the result of long study, intense reflection and a 
course of experiments equally ingenious and delicate, that are 
the joint occupation of the highest degree of chemical, medi- 
cal and mathematical skill. But the knowledge, acquired with 
so much difficulty, is probably transmissible in a few pages; 
and, through the channel of public lectures, or of the press, is 
circulated in much greater abundance, than is required for con- 
sumption; or rather, it spreads of itself, and, being imperisha- 
ble, there is never any necessity to recur to those, from whom 
it originally emanated. 

Thus, according to the natural laws, whereby the price of 
things is determined, this superior class of knowledge will be 
very ill paid: that is to sa)^, it will receive a very inadequate 
portion of the value of the product, to which it has contributed. 
It is from a sense of this injustice, that every nation, sufficiently 
enlightened to conceive the immense benefit of scientific pur- 
suits, has endeavoured, by special favours and flattering dis- 
tinctions, to indemnify the man of science, for the very trifling 
profit derivable from his professional occupations, and from 
the exertion of his natural or acquired faculties. 

Sometimes a manufacturer discovers a process, calculated 
either to introduce a new product, to increase the beauty of 
an old one, or to produce with greater economy; and, by ob- 
servance of strict secrecy, may make for many years, for his 
whole life perhaps, or even bequeath to his children, profits 
exceeding the ordinary ratio of his calling. In this particular 
case the manufacturer combines two different operations of 
industry; that of the man of science, whose profit he engrosses 



284 ON DISTRIBUTION. book it, 

himself, and that of the adventurer too. But few such disco- 
veries can long remain secret; which is a fortunate circum- 
stance for the public, because this secrecy keeps the price of 
the particular product it applies to above, and the number of 
consumers enabled to enjoy it below, the natural level.* 

It is obvious, that 1 am speaking only of the revenue a man 
of science derives from his calling. There is nothing to pre- 
vent his being at the same time a landed proprietor, capitalist, 
or adventurer, and possessed of other revenue in these differ- 
ent capacities. 



SECTION III. 

Of the Projits of the Master- agent, or Adventurer, in 
Industry. 

We shall, in this section, consider only that portion of the 
profits of the master-agent, or adventurer, which may be con- 
sidered as the recompense of that peculiar character. If a 
master- manufacturer have a share of the capital embarked in 
his concern, he must be ranked pro tanto in the class of capi- 
talists, and the benefits thence derived be set down as part of 
the profits of the capital so embarked, t 

It very seldom happens, that the party engaged in the man- 
agement of any undertaking, is not at the same time in the 
receipt of interest upon some capital of his own. The manager 
of a concern rarely borrows from strangers the whole of the 
capital employed. If he have but purchased some of the im- 
plements with his own capital, or made advances from his own 
funds, he will then be entitled to one portion of his revenue 
in quality of manager, and another in that of capitalist. Man- 
kind are so little inclined to sacrifice any particle of their self- 
interest, that even those, who have never analyzed these re- 
spective rights, know well enough how to enforce them to 
their full extent in practice. 

* Such of my readers as may imag-ine, that the sum of the production of 
a country is greater, when the scale of price is unnaturally high, are re- 
quested to refer to what has been said on the subject, supra. Chap. 3. of 
this Book. 

■j- Smith is greatly embarrassed by his neglect of the distinction between 
the profits of superintendency, and those of capital. He confounds them 
under the general head of profits of stock-, and all his sagacity and acute- 
iiess have scarcely been sufficient to expound the causes, which influence 
their fluctuations. Wealth of Nations, book i. c. 8. And no wonder he 
found himself thus perplexed? their value is regulated upon entirely differ- 
ent principles. The profits of labour depend upon the degree of skill, ac- 
tivity, judgment, &c. exerted; those of capital, on the abundance or scarcity 
of capital, the security of the investment, &.c. 



CHAP. VII. ON DISTRIBUTION. 285 

Our present concern is, to distinguish the portion of revenue, 
which the adventurer receives as adventurer. We shall see 
by-and-hy, what he, or somebody else, derives in the charac- 
ter of capitalist. 

It may be remembered, that the occupation of adventurer 
is comprised in the second class of operations specified as ne- 
cessary for the setting in motion oi every class of industry 
whatever; that is to say, the application of acquired knowledge 
to the creation of a product for human consumption.* It will 
likewise be recollected, that such application is equally neces- 
sary in agricultural, manufacturing, and commercial industry; 
that the labour of the farmer or cultivator on his own account, 
of the master-manufacturer and of the merchant, all come un- 
der this description; they are the adventurers in each depart- 
ment of industry respectively. The nature of the profits of 
these three classes of men, is what we are now about to con- 
sider. 

The price of their labour is regulated, like that of all other 
objects, by the ratio of the supply, or quantity of that labour 
thrown into circulation, to the demand or desire for it. There 
are two principal causes operating to limit the supply, which, 
consequently, maintain at a high rate the price of this superior 
kind of labour. 

It is commonly requisite for the adventurer himself to pro- 
vide the necessary funds. Not that he must be already rich; 
for he may work upon borrowed capital; but he must at least 
be solvent, and have the reputation of intelligence, prudence, 
probity, and regularity; and must be able, by the nature of his 
connexions, to procure the loan of capital he may happen him- 
self not to possess. These requisites shut out a great many 
competitors. 

In the second place, this kind of labour requires a combina- 
tion of moral qualities, that are not often found together. 
Judgment, perseverance, and a knowledge of the world, as 
well as of business. He is called upon to estimate, with tolera- 
ble accuracy, the importance of the specific product, the pro- 
bable amount of the demand, and the means of its production: 
at one time he must employ a great number of hands; at ano- 
ther, buy or order the raw material, collect labourers, find con- 
sumers and give at all times a rigid attention to order and 
economy; in a word, he must possess the art of superintend- 
ence and administration. He must have a ready knack of cal- 
culation, to compare the charges of production with the proba- 
ble value of the product when completed and brought to mar- 
ket. In the course of such complex operations, there are 
abundance of obstacles to be surmounted, of anxieties to be 
repressed, of misfortunes to be repaired, and of expedients to 
be devised. Those who are not possessed of a combination of 
these necessary qualities, are unsuccessful in their undertak- 

* Vide supra, Book I. chiip. 6, 



2S6 ON DISTRIBUTION. book ii. 

ings; their concerns soon fall to the ground, and their labour 
is quickly withdrawn from the stock in circulation; leaving 
such only, as is successfully, that is to say, skilfully directed. 
Thus, the requisite capacity and talent limits the number of 
competitors for the business of adventurers. Nor is this all: 
there is always a degree of risk attending such undertakings; 
however well they may be conducted, there is a chance of 
failure; the adventurer may, without any fault of his own, 
sink his fortune, and in some measure his character; which is 
another check to the number of competitors, that also tends to 
make their agency so much the dearer. 

All branches of industry do not require an equal degree of 
capacity and knowledge. A farmer, who adventures in til- 
lage, is not expected to have such extensive knowledge as a 
merchant, who adventures in trade with distant countries. 
The farmer may do well enough with a knowledge of the or- 
dinary routine of two or three kinds of cultivation. But the 
science necessary for conducting a commerce with long re- 
turns is of a much higher order. It is necessary to be well 
versed, not only in the nature and quality of the merchandise 
in which the adventure is made, but likewise to have some 
notion of the extent of demand, and of the markets whither it 
is consigned for sale. For this purpose, the trader must be 
constantly informed of the price-current of every commodity 
in different parts of the world. To form a correct estimate of 
these prices, he must be acquainted with the different national 
currencies, and their relative value, or, as it is termed, the rate 
of exchange. He must know the means of transport, its risk 
and expense, the custom and laws of the people he corres- 
ponds with; in addition to all which, he must possess sufficient 
knowledge of mankind to preserve him from the dangers of 
misplaced confidence in his agents, correspondents, and con- 
nexions. If the science requisite to make a good farm is more 
common than that which can make a good merchant, it is not 
surprising, that the labour of the former is but poorly paid, in 
comparison with that of the latter. 

It is not meant by this to be understood, that commercial in- 
dustry, in every branch, requires a combination of rarer quali- 
fications than agricultural. The retail dealers for the most 
part pursue the routine of their business quite as mechanically 
as the generality of farmers; and, in some kinds of cultiva- 
tion, very uncommon care and sagacity are requisite. It is 
for the reader to make the application: the business of the 
teacher is, firmly to establish general principles; whence it 
will be easy to draw a multitude of inferences, varied and 
modified by circumstances, which are themselves the conse- 
quences of other principles laid down in other parts of the 
subject. Thus, in astronomy, when we are told, that all the 
planets describe equal areas in the same space of time, there 
is an implied reservation of such derangements, as arise from 
the proximity of other planets, whose attractive powers de- 



CHAP. VII. ON DISTRIBUTION. 287 

pend on another law of natural philosophy; and this must be 
attended to in the examination of the phenomena of each in 
particular. It is for him, who would apply general laws to 
particular and isolated cases, to make allowance for the in- 
fluence of each of those laws or principles, whose existence is 
already recognised. 

In reviewing presently the profits of mere manual labour, 
we shall see the peculiar advantage, which his character of 
master gives to the adventurer over the labourer; but it may 
be useful to observe by the the way the other advantages with- 
in reach of an intelligent superior. He is the link of commu- 
nication, as well between the various classes of producers, one 
with another, as between the producer and the consumer. He 
directs the business of production, and is the centre of many 
bearings and relations; he profits by the knowledge and by the 
ignorance of other people, and by every accidental advantage 
of production. 

Thus, it is this class of producers, which accumulates the 
largest fortunes, whenever productive exertion is crowned by 
unusual success. 



SECTION IV. 



Of the Profits of the Operative Labourer. * 

Simple, or rough labour may be executed by any man pos- 
sessed of life and health; wherefore, bare existence is all that 
is requisite to ensure a supply of that class of industry. Con- 
sequently, its wages seldom rise in any country much above 
what is absolutely necessary to subsistence; and the quantum 
of supply always remains on a level with the demand; nay, 
often goes beyond it; for the difficulty lies not in acquiring 
existence, but in supporting it. Whenever the mere circum- 
stance of existence is sufficient for the execution of any kind 
of work, and that work aflfords the means of supporting exist- 
ence, the vacuum is speedily filled up. 

There is, however, one thing to be observed. Man does 
not come into the world with the size and strength sufficient 

* By the term labourer, T mean, the person who works on account of a 
master-agent, or adventurer, in industry; for such as are masters of their 
own labour, like the cobler in his stall, or the itinerant knife-grinder, unite 
the two characters of adventurer and labourer; their profits being in part 
governed by the circumstances detailed in the preceding section, and part- 
ly by those developed in this. It is necessary also to premise, that the la- 
bour spoken of in the present section is that, which rec[uires little or no 
study or training; the acquisition of any talent or personal skill entitles the 
possessor to afurther profit, regulated upon the principles explained swpra, 
sect. 1. of this Chapter. 



288 ON DISTRIBUTION. book ii. 

to perform labour even of the simplest kind. He acquires this 
capability not till the age of fifteen or twenty, more or less, 
and may be regarded as an item of capital, formed of the grow- 
ing annual accumulation of the sums spent in rearing him.* 
By whom, then, is this accumulation effected? In general by 
the parents of the labourer, by persons of his own calling, or 
of one akin to it. In this class of life, therefore, the wages 
are somewhat more than is necessary for bare personal exist- 
ence; they must be sufficient to maintain the children of the 
labourer also. 

If the wages of the lowest class of labour were insufficient 
to maintain a family, and bring up children, its supply would 
never be kept up to the complement; the demand would ex- 
ceed the supply in circulation; and its wages would increase, 
until that class were again enabled to bring up children enough 
to remedy the deficiency. 

This would happen, if marriage were discouraged amongst 
the labouring class. A man without wife or children may af- 
ford his labour at a much cheaper rate, than one who is a hus- 
band and a father. If celibacy were to gain ground amongst 
the labouring class, that class would not only contribute no- 
thing to recruit its own members, but would prevent others 
from supplying the deficiency. A temporary fall in the price 
of manual labour, arising from the cheaper rate, at which sin- 
gle men can afford to work, would soon be followed by a dis- 
proportionate rise; because the number of workmen would 
fall off. Thus, even were it not more to the interest of mas- 
ters to employ married men, on account of their steadi- 
ness, they should do so, though at a greater charge, to avoid 
the higher price of labour, that must eventually recoil on 
them. 

Every particular line or profession does not, indeed, recruit 
its own numbers with children nursed among its own mem- 
bers. The new generation is transferred from one class of life 
to another, and particularly from rural occupations to occupa- 
tions of a similar cast in the towns; for this reason, that children 
are cheaper trained in the country: all I mean to say is, that 
the rudest and lowest class of labour necessarily derives from 
its product a portion sufficient, not merely for its present main- 
tenance, but likewise for the recruiting of its numerical 
strength, t 

* A full grown man is an accumulated capital; the sum spent in rearing 
him is indeed consumed, but consumed in a reproductive way, calculated 
to yield the product, man. 

•j- The evidence examined before a committee of the House of Commons 
of England, in 1815, leads to the conclusion, that the high price of food, at 
that period, had the effect of depressing, rather than elevating the scale of 
wages. I have myself remarked the similar effect of the scarcities in 
France, of the years 1811 and 1817. The difficulty of procuring subsist- 
ence either forced more labourers into the market, or exacted more exer- 



CHAP. VII. ON DISTRIBUTION. 289 

When a country is on the decline, and contains less of the 
means of production, and less of knowledge, activity, and capi- 
tal, the demand for rough and simple labour diminishes by de- 
grees; wages fall gradually below the rate necessary for recruit- 
ing the labouring class; its numbers consequently decrease, 
and the offspring of the other classes, whose employment di- 
minishes in the same proportion, is degraded to the step im- 
mediately below. On the contrary, when prosperity is ad- 
vancing, the inferior classes not only fill up their own comple- 
ment with ease, but furnish a surplus and addition to the 
classes immediately above them; and some, by great good for- 
tune or brilliancy of talent, arrive at a still loftier eminence, 
and reach even the highest stations in society. 

The labour of persons not entirely dependent for subsistence 
on the fruits of labour can be afforded cheaper, than that of 
such as are labourers by occupation. Being fed from other 
sources, their wages are not settled by the price of subsistence. 
The female spinners in country villages probably do not earn 
the half of their necessary expenses, small as they are; one is 
perhaps the mother, another the daughter, sister, aunt, or mo- 
ther-in-law of a labourer, who would probably support her, 
if she earned nothing for herself. Were she dependent for 
subsistence on her own earnings only, she must evidently 
double her prices, or die of want; in other words, her industry 
must be paid doubly, or would cease to exist. 

The same may be said of most kinds of work performed by 
females. They are in general but poorly paid, because a large 
proportion of them are supported by other resources than 
those of their own industry, and can, therefore, supply the 
work they are capable of at a cheaper rate, than even the bare 
satisfaction of their wants. The work of the monastic order 
is similarly circumstanced. It is fortunate for the actual la- 
bourers in those countries where monarchism abounds, that it 
manufactures little else but trumpery; for, if its industry were 
applied to works of current utility, the necessitous labourers 
in the same department, having families to support, would be 
unable to work at so low a rate, and must absolutely perish by 
want and starvation. The wages of manufacturing, are often 
higher than those of agricultural labour; but they are liable to 
the most calamitous oscillation. War or legislative prohibi- 
tion will sometimes suddenly extinguish the demand for a 
particular product, and reduce the industry employed upon it 
to a state of utter destitution. The mere caprice of fashion is 
often fatal to whole classes. The substitution of shoe rib- 
bands for buckles was a severe blow to the population of Shef- 
field and Birmingham. * 

tion from those already engag'ed; thus occasioning a temporary glut of la- 
bour. But the necessary sufferings of the labouring class at the time must 
inevitably have thinned its ranks. 

* Malthus, Essay on Pupul. ed. 5. b. iii. c. 13. 
44 



290 ON DISTRIBUTION. look ii. 

The smallest variations in the price of rude and simple la- 
bour have ever been justlj^ considered as serious calamities. 
In classes of somewhat superior wealth, and talents, which 
are, in fact, a species of personal wealth, a diminution in the 
rate of profits entails only a reduction of expense, or, at most, 
but trenches, in some measure, upon the capital those classes 
generally have at their disposal. But to those, whose whole 
income is a bare subsistence, a fall of wages is an absolute 
death-warrant, if not to the labourer himself, to part of his 
family at least. 

Wherefore, all governments, pretending to the smallest pa- 
ternal solicitude for their subjects' welfare, have evinced a 
readiness to aid the indigent class, wherever any unexpected 
event has accidentally reduced the wages of common labour 
below the level of the labourer's subsistence. Yet the bene- 
volent intentions of the government have too often failed in 
their efficacy, for want of judgment in the choice of a remedy. 
To render it effective, it is necessary first to explore the cause 
of depression in the price of labour. If that depression be of 
a permanent nature, pecuniary and temporary aid is of no pos- 
sible avail, and merely defers the pressure of the mischief. 
Of this nature are the discovery of new processes, the intro- 
duction of new articles of import, or the emigration of a con- 
siderable number of consumers, {a) In such emergencies, a 
remedy must be sought in the discovery of some new and per- 
manent occupation for the hands thrown out of employ, in the 
encouragement of new channels of industry, in the setting on 
foot of distant enterprises, the planting of colonies, &c. 

If the depression be not of a permanent nature, if it be the 
mere result of good or bad crops, the temporary assistance 
should be limited to the unfortunate sufferers by the oscilla- 
tion. 

Governments or individuals, who attempt indiscriminate 
beneficence, will have the frequent mortification of finding 
their bounty unavailing. This may be more convincingly 
demonstrated by example than by argument. 

Suppose in a vine district the quantity of casks to be so 
abundant, as to make it impossible to use them all. A war, 
or a statute levelled against the production of wine, may, per- 
haps, have caused many proprietors of vineyards to adopt a 

(a) The second and last of these ch'cumstances are neither of them ne- 
cessarily, universally, or permanenily, followed by the depression of the 
rate of wages. When a new object of import does not supersede one of 
either home or foreign production, it must tend to raise the rate of wages, 
as it can only be procvu-ed by enlarged home production. Tlie emigration 
of consumers, continuing to draw subsistence from the country they desert, 
leaves in activity an equal mass of human labour, though possibly vvith some 
variation of employment. Besides, it may be temporary only, as that of the 
English to the continent, and of the Irish both to England and to the con- 
tinent; who possibly might be brought back by an improvement of domes- 
tic finance or of domestic secui-ity and comfort. T. 



CHAP. VII. ON DISTRIBUTION. 291 

different cultivation of their lands; this is a permanent cause 
of surplus cooperage in the market. In ignorance of this 
cause, a general effort is made to assist the labouring coopers, 
either by purchasing their casks without wanting them, or by 
making up, in the shape of alms, the loss they have sustain- 
ed in the diminution of their profits. Useless purchases, or 
eleemosynary aid, however, can not last for ever; and, the 
moment they cease, the poor coopers will find themselves 
precisely in the same distressful situation, from which it was 
attempted to extricate them. All the sacrifice and expense will 
have been incurred with no advantage, other than that of a 
little delay in the date of their hopeless sufierings and priva- 
tions. 

Suppose, on the contrary, the cause of the superabundance 
of casks to be but temporary; to be nothing more, than the 
failure of the annual crop. If, instead of affording temporary 
relief to the working coopers, they be encouraged to remove 
to other districts, or to enter upon some other branch of in- 
dustry, it will follow, that the next year, when wine may be 
abundant, there will be a scarcity of casks to receive it; the 
price will become exorbitant, and be settled at the suggestion 
of avarice and speculation; which, being unable themselves to 
manufacture casks, after the means of producing them have 
been thus destroyed, part of the wine will probably be spoil- 
ed for want of casks to hold it. It will require a second 
shock and derangement of the rate of wages, before the manu- 
facture of the article can be brought again to a level with the 
demand. 

Whence it is evident, that the remedy must be adapted to 
the particular cause of the mischief; consequently, the cause 
must be ascertained, before the remedy is devised. 

Necessary subsistence, then, may be taken to be the stand- 
ard of the wages of common rough labour; but this standard 
is itself extremely fluctuating; for habit has great influence 
upon the extent of human wants. It is by no means certain, 
that the labourers of some cantons of France could exist under 
a total privation of wine. In London, beer is considered in- 
dispensable; that beverage is there so much an article of ne- 
cessity, that beggars ask for money to buy a pot of beer,(«) 
as commonly as in France for the purchase of a morsel of 
bread; and this latter object of solicitation, which appears to 
us so very natural, may seem impertinent to foreigners just 
arrived from a country, where the poor subsist on potatoes, 
manioc, or other still coarser diet. 

What is necessary subsistence, depends, therefore, partly 
on the habits of the nation, to which the labourer may happen 
to belong. In proportion as the value he consumes is small, 



(a) The present depression of the labouring' classes in England haslower- 
ed the tone of mendicity, if indeed it ever was raised to so high a key. T. 



292 ON DISTRIBUTION. book iv 

his ordinary wages may be low, and the product of his labour 
cheap. If his condition be improved, and his wages raised, 
either his product becomes dearer to the consumer, or the share 
of his fellow producers is diminished. 

The disadvantages of their position are an effectual barrier 
against any great extension of the consumption of the labour- 
ing classes. Humanity, indeed, would rejoice to see them 
and their families dressed in clothing suitable to the climate 
and season; housed in roomy, warm, airy, and healthy habi- 
tations, and fed with wholesome and plentiful diet, with per- 
haps occasional delicacy and variety; but there are very few 
countries, where wants, apparently so moderate, are not con- 
sidered far beyond the limits of strict necessity, and therefore 
not to be gratified by the customary wages of the mere labour- 
ing class. 

The limit of strict necessity varies, not only according to 
the more or less comfortable condition of the labourer and his 
family, but likewise according to the several items of expense 
reputed unavoidable in the country he inhabits. Among these 
is the one we have just adverted to; namely, the rearing of 
children; there are others less urgent and imperative in their 
nature, though equally enforced by feeling and natural senti- 
ments; such as the care of the aged, to which unhappily the 
labouring class are far too inattentive. Nature could entrust 
the perpetuation of the human species to no impulse less strong, 
than the vehemence of appetite and desire, and the anxiety of 
paternal love; but has abandoned the aged, whom she no long- 
er wants, to the slow workings of filial gratitude, or, what is 
even less to be depended upon, to the providence of their 
younger years. Did the habitual practice of society impera- 
tively subject every family to the obligation of laying by some 
provision for age, as it commonly does for infancy, our ideas 
of necessity would be somewhat enlarged, and the minimum 
of wages somewhat raised. 

It must appear shocking to the eye of philanthropy, that 
such is not always the case. It is lamentable to think of the 
little providence of the labouring classes against the season of 
casual misfortune, infirmity, and sickness, as well as against 
the certain helplessness of old age. Such considerations af- 
ford most powerful reasons for forwarding and encouraging 
provident associations of the labouring class, for the daily de- 
posit of a trifling saving, as a fund in reserve for that period, 
when age, or unexpected calamity, shall cut off the resource 
of their industry.* But such institutions can not be expected 
to succeed, unless the labourer be taught to consider these 

* Saving banks have succeeded in several districts of England, Holland, 
and Germany; particularly wliere the government has been wise enough to 
withhold its interference. The Insurance Company of Paris has set one on 
foot upon the most liberal principles and with the most substantial guaran- 
tee. It is to be hoped, that the labouring classes in general will see the 
wisdom of placing their little savings in such an establishment, in prefer- 



CHAP. VII. ON DISTRIBUTION. 293 

means of precaution as a matter of duty and necessity, and 
hold to the obligation to carry his savings to such places of 
deposite, as equally indispensable with the payment of his rent 
or taxes: this new duty would doubtless tend in a slight de- 
gree to raise the scale of wages so as to allow of such frugali- 
ty, but for that very reason it is desirable. How can such 
establishments thrive in countries where habit and the inter- 
ested views of the government conspire to make the labourer 
spend in the public-house not only what he might lay by, but 
frequently the very subsistence of his family, in which all his 
comforts and pleasures should be centered. The vain and cost- 
ly amusements of the rich are not always justifiable in the eye 
of reason; but how much more disastrous is the senseless dis- 
sipation of the poor! The mirth of the indigent is invariably 
seasoned with tears; and the orgies of the populace are days of 
mourning to the philosopher. 

Besides the reasons advanced in this and the preceding sec- 
tions, to explain why the wages of the adventurer, even if he 

ence to the hazardous investments they have often been decoyed into. 
There is besides a further national advantage in such a practice; viz. that 
of augmenting- the general mass of productive capital, and consequently ex- 
tending the demand for human agency. (1) 



(1) [In the principal cities of the United States, Saving Banks have also 
recently been established, and have been attended with so much benefit, 
that we expect soon to hear of their spreading through every part of the 
Union. To the Friendly or Beneficial Societies there are strong objections, 
to which the Saving Banks are not liable. The Friendly Societies have, 
undoubtedly, done some good; but attended with a certain portion of evil. 
The following extract from a report of the Committee of the Highland 
Society, places these latter societies in a very proper light. 

" During the last centur}-, a niunber of Friendly Societies have been 
established by the labourers in different parts of Great Britain, to enable 
them to make provision against want. The ])rinciple of these societies 
usually is, that the members pay a certain stated sum periodically, from 
which an allowance is made to them upon sickness or old ag"e, and to their 
families upon their death. These societies have done much good; but 
they are attended with some disadvantages. In particular, the frequent 
meetings of the members occasion the loss of much time, and frequently 
of a good deal of money spent in entertainments: The stated payments 
must be regularly made; otherwise, after a certain time, the luember (ne- 
cessarily from its being in fact an insurance) loses the benefit of all that he 
has formerly paid. Nothing more than the stated paj'ments can be made, 
however easily the member might be able at the moment to add a little to 
his store. Frequently the value of the chances on whicli the societies are 
formed, is ill calculated; in which case either the contributors do not re- 
ceive an equivalent for their payments, or too large an allowance is given 
at first, which brings on the bankruptcy of tlie institution. Frequently the 
sums are embezzled by artful men, who, by imposing on the inexperience 
of the members, get themselves elected into offices of trust. The benefit 
is distant and contingent; each member not having benefit from his con- 
tributions in every case, but only in the case of his falling into the situa- 
tions of distress provided for by the society. And the whole concern is so 
complicated, that many have hesitation in embarking in it their hard earn- 
ed savings."] Ameuican Editor. 



294 ON DISTRIBUTION. book ii. 

derive no profit as a capitalist, are generally higher than 
those of the mere labourer, there are others, not so solid or well 
founded indeed, but such as nevertheless must not be over- 
looked. 

The wages of the labourer are a matter of adjustment and 
compact between the conflicting interests of master and work- 
man; the latter endeavouring to get as much, the former to 
give as little, as he possibly can; but, in a contest of this kind, 
there is on the side of the master an advantage, over and 
above what is given him by the nature of his occupation. The 
master and the workman are no doubt equally necessary to 
each other; for one gains nothing but with the other's assist- 
ance; the wants of the master are, however, of the two, less 
urgent and less immediate. There are few masters, but what 
could exist several months or even years, without employing 
a single labourer; and few labourers that can remain out of 
work for many weeks, without being reduced to the extremity 
of distress. And this circumstance must have its weight in 
striking the bargain for wages between them. 

Sismondi, in a late work* published since the appearance 
of my third edition, has suggested some legislative provisions, 
for the avowed purpose of bettering the condition of the la- 
bouring classes. He sets out with the position, that the low 
rate of their wages accrues to the benefit of the adventurers 
and masters who employ them; and thence infers, that, in the 
moment of calamity, their claim for relief is upon the mas- 
ters, and not upon society at large. Wherefore, he proposes 
to make it obligatory upon the proprietors and farmers of land 
at all times to feed the agricultural, and upon the manufactur- 
ers to provide subsistence for the manufacturing labourer. 
On the other hand, to prevent the probable excess of popula- 
tion, consequent upon the certain prospect of subsistence to 
themselves and their families, he would give to their respec- 
tive masters the right of preventing or permitting marriage 
amongst their people. 

This scheme, however entitled to favourable consideration 
by the motive of humanity in which it originated, seems to 
me altogether impracticable. It would be a gross violation 
of the right of property, to saddle one class of society with the 
compulsory maintenance of another; and it would be a viola- 
tion still more gross, to give to one set of men a personal con- 
trol over another; for the freedom of personal action is the 
most sacred of all the objects of property. The arbitrary prohi- 
bition of marriage to one class is a premium to the procreation 
of all the rest. Besides, there is no truth in the position, that 
the low rate of Vv'ages redounds exclusively to the profit of the 
master. Their reduction, followed up by the constant action 
of competition, is sure to bring about a fall of the price of pro- 
ducts; so that it is the class of consumers, in other words, the 

* Nwxveaux Prin. d'Econ. Pol. liv. vii. c. 9. 



CHAP. VII. ON DISTRIBUTION. 295' 

whole community, that derives the profit. And if it be so 
^reat, as to throw the subsistence of the labourers upon the pub- 
lic at large, the public is in a great measure indemnified by the 
reduced prices of the objects of its consumption. 

There are some evils incident to the imperfection of the hu- 
man species, and to the constitution of nature; and of this de- 
scription is the excess of population above the means of sub- 
sistence. On the whole, this evil is quite as severely felt in a 
horde of savages, as in a civilized community. It would be 
unjust to suppose it a creature of social institutions, and a mere 
fallacy to hold out the prospect of a complete remedy; and, 
however it may merit the thanks of mankind to study the means 
of palliation, we must be cautious not to give a ready ear to 
expedients that can have no good efi'ect, and must prove worse 
than the disease, itself. A government ought doubtless to pro- 
tect the interests of the labouring classes, as far as it can do so 
without deranging the course of human afi"airs, or cramping the 
freedom of individual dealings; for those classes are less ad- 
vantageously placed than the masters, in the common course of 
things; but a wise ruler will studiously avoid all interference 
between individuals, lest it superadd the evils of administra- 
tion to those of natural position. Thus, he will equally protect 
the master and the labourer from the efiects of combination. 
The masters have the advantage of smaller numbers and easier 
communication; whereas, the labourers can scarcely combine, 
without assuming the air of revolt and disaSection, which the 
police is ever on the watch to repress. Nay, the partisans of 
the exporting system have gone so far as to consider the com- 
binations of the journeymen as injurious to national prosperity, 
because they tend to raise the price of the commodities destin- 
ed for export, and thereby to injure their preference in the 
foreign market, which they look upon as so desirable. But 
what must be the character of that policy, which aims at na- 
tional prosperity through the impoverishment of a large pro- 
portion of the home producers, with a view to supply foreign- 
ers at a cheaper rate, and give them all the benefit of the na- 
tional privation and self-denial? 

One sometimes meets with masters, who, in their anxiety to 
justify their avaricious practices by argument, assert roundly, 
that the labourer would perform less work, if better paid, and 
that he must be stimulated by the impulse of want. Smith, a 
writer of no small experience and singular penetration, is of a 
very different opinion. Let us take his own words. " The 
liberal reward of labour, as it encourages the propagation, so 
it increases the industry of the common people. The wages of 
labour are the encouragement of industry, which, like every 
other human quality, improves in proportion to the encourage- 
ment it receives. A plentiful subsistence increases the bodily 
strength of the labourer, and the comfortable hope of bettering 
his condition, and of ending his days perhaps in ease and plen- 
ty, animates him to exert that strength to the utmost. Where 



296 ON DISTRIBUTION. book ii. 

wages are high, accordingly, we shall always find the work- 
men more active, diligent, and expeditious, than where they 
are low; in England, for example, than Scotland; in the neigh- 
bourhood of great towns, than in remote country places. 
Some workmen, indeed, when they can earn in four days what 
will maintain them through the week, will be idle the other 
three. This, however, is by no means the case with the greater 

Eart. Workmen, on the contrary, when they are liberally paid 
y the piece, are very apt to overwork themselves, and to ruin 
their health and constitution in a few years."* 



SECTION V. 

Of the Independence accruing to the Moderns from the Jid- 
vancement of Industry. 

The maxims of political economy are immutable; ere yet 
observed or discovered, they were operating in the way above 
described; the same cause regularly producing the same effect: 
the wealth of Tyre and of Amsterdam originated in a common 
source. It is society that has been subject to change, in the 
progressive advancement of industry. 

The ancients were not nearly so far behind the moderns in 
agriculture, as in the mechanical arts. Wherefore, since ag- 
ricultural products are alone essential to the multiplication of 
mankind, the unoccupied surplus of human labour was larger 
than in modern days. Those, who happened to have little or 
no land, unable to subsist upon the product of their own indus- 
try, unprovided with capital, and too proud to engage in those 
subordinate employments, which were commonly filled by 
slaves, had no resource but to borrow, without a prospect of the 
ability to repay, and were continually demanding that equal 
division of property, which was utterly impracticable. With 
a view to stifle their discontents, the leading men of the state 
were obliged to engage them in warlike enterprises, and, in 
the intervals of peace, to subsist them on the spoils of the ene- 
my, or on their own private means. This was the grand source 
of the civil disorder and discord, which continually distracted 
the states of antiquity; of the frequency of their wars, of the 
corruption of their suffrages, and of the connexion of patron 
and client, which backed the ambition of a Marius and a Sylla, 
a Pompey and aCsesar, an Antony and an Octavius, and which 
finally reduced the whole Roman people to the condition of ser- 
vile attendants upon the court of a Caligula, a Heliogabalus or 
some monsterof equal enormity, whose grand condition of em- 
pire was the subsistenceof the objects of his atrocious tyranny. 

* Wealth of Nations, book i. c. 8. 



CHAP. VII. ON DISTRIBUTION. 297 

The industrious cities of Tyre, Corinth, and Carthage, were 
somewhat differently circumstanced; but they could not per- 
manently resist the hostility of poorer and more warlike na- 
tions, impelled by the prospect of plunder. Industry and 
civilization were the continual prey of barbarism and penury; 
and Rome herself, at length, yielded to the attack of Gothic 
and Vandalic conquerors. 

Thus replunged into a state of barbarism, the condition of 
Europe, during the middle ages, was but a revival of the ear- 
liest scenes of Grecian and Italian history, in an aggravated 
form. Each baron, or great landholder, was surrounded by 
a circle of vassals or clients on his domain, ready to follow 
him in civil broils or foreign warfare, 

I should trench upon the province of the historian, were I 
to attempt the delineation of the various causes, that have aid- 
ed the progress of industry since that period; but I may be al- 
lowed merely to note, by the way, the great change that has 
been effected, and the consequences of that change. Indus- 
try has become a means of subsistence to the bulk of the popu- 
lation, independent of the caprice of the large proprietors, and 
without being to them a constant source of alarm: it is nursed 
and supported by the capital accumulated by its own exertions. 
The relation of client and vassal has ceased to exist; and the 
poorest individual is his own master, and dependent upon his 
personal faculties alone. Nations can support themselves upon 
their internal resources; and governments derive from their 
subjects those supplies, which they were wont to dispense as 
a matter of favour. 

The increasing prosperity of manufacture and commerce 
have raised them in the scale of estimation. The object of war 
is changed, from the spoliation and destruction of the sources 
of wealth, to their quiet and exclusive possession. For the 
last two centuries, where war has not been made to gratify the 
childish vanity of a nation or a monarch, the bone of conten- 
tion has always been, either colonial sovereignty, or commer- 
cial monopoly. Instead of a contest of hungry barbarians 
against their wealthy and industrious neighbours, it has been 
one between civilized nations on either side; wherein the vic- 
tor has shown the greatest anxiety to preserve the resources of 
the conquered territory. The invasion of Greece by the Turks, 
in the fifteenth century, appears to have been the final effort 
of pure barbarism arrayed against civilization. («) The pre- 
sent preponderance of industry and civilized habils amongst 
the general mass of mankind seems to exclude all probability 
of a recurrence of such calamitous events. Indeed, the im- 



(a) That is to say in Europe; for in Asia the contest is still continued; 
and the late brilliant successes of the British arms in that cjnarter liave been 
achieved by the spirit of order and civilizaiion over tliaL of anarchy and 
spoliation. T. 

45 



298 ON DISTRIBUTION. book ii. 

provement of military science takes away all fear of the result 
of such a conflict. 

There is yet one step more to be made; and that can only 
be rendered practicable by the wider diffusion of the princi- 
ples of political economy. They will some day have taught 
mankind, that the sacrifice of their lives, in a contest for the 
acquisition or retention of colonial dominion or commercial 
monopoly, is a vain pursuit of a costly and delusive good; that 
external products, even those of the colonial dependencies of 
a nation, are only procurable with the products of domestic 
growth; that internal production is, therefore, the proper ob- 
ject of solicitude, and is best to be promoted by political tran- 
quillity, moderate and equal laws, and facility of intercourse. 
The fate of nations will thenceforth hang no longer upon the 
precarious tenure of political pre-eminence, but upon the rela- 
tive degree of information and intelligence. Public function- 
aries will grow more and more dependent upon the produc- 
tive classes, to whom they must look for supplies; the people, 
retaining the right of taxation in their own hands, will always 
be well governed; and the struggles of power against the cur- 
rent of improvement will end in its own subversion; for it will 
vainly strive against the dispensations of nature. 



CHAPTER YIII. 



OF THE REVENUE OF CAPITAL. 

The service, rendered by capital, in productive operations, 
establishes a demand for capital to be so employed, and ena- 
bles the proprietors of it to charge more or less for that ser- 
vice. 

Whether the capitalist thus employ his capital himself, or 
lend it to another for that purpose, it yields a profit, that is 
called i\\e profit of capital, distinct from that of the industry 
employing it. In the former case, the profit obtained consti- 
tutes the revenue of his capital, which is added to that of his 
personal talent and industry, and often confounded with it. — 
In the latter, the revenue of capital is precisely the interest 
paid for its use, the proprietor abandoning to the borrower the 

f)rofit derivable from his personal employment of the capital 
ent. 

As the investigation of the interest of capital lent will help 
to throw light on the subject of the profit derivable from its 
personal employment, it may be as well, in the first instance, 
to acquire a just idea of the nature and variation of interest. 



CHAP. VIII. ON DISTRIBUTION. 399 

SECTION I. 

Of Loan at Interest. 

The interest of capital lent, improperly called the interest 
of money, was formerly denominated usury, that is to say, 
rent for its use and enjoyment; which, indeed, was the correct 
term; for interest is nothing more than the price, or rent, paid 
for the enjoyment of an object of value. But the word has 
acquired an odious meaning, and now presents to the mind the 
idea of illegal, exorbitant interest only, a milder but less ex- 
pressive term having been substituted by common usage. 

Before the functions and utility of capital were known, it is 
probable, that the demand of rent for it by lenders was con- 
sidered an abuse and oppression, — an expedient to favour the 
rich and prejudice the poor; nay, further, that frugality, the 
sole means of amassing capital, was regarded as parsimony, 
and deemed a public mischief by the populace, in whose eyes, 
the sums not spent by great proprietors were looked upon as 
lost to themselves. They could not comprehend, that money, 
laid by to be turned to account in some beneficial employ- 
ment, must be equally spent; for, if it were buried, it coulcl 
never be turned to account at all; that it is in fact, spent in a 
manner a thousand times more profitable to the poor;* and 
that a labouring man is never sure of earning a subsistence, 
except where there is a capital in reserve for him to work 
upon. This prejudice against rich individuals, who do not 
spend their whole income, still exists pretty generally; for- 
merly it was universal; lenders themselves were not alto- 
gether free from it, but were so much ashamed of the part 
they were acting, as to employ the most disreputable agents 
in the collection of profits perfectly just, and highly acivan- 
tageous to society. 

It is, therefore, not surprising that the ecclesiastical, and at 
several periods, the civil code likewise, should have interdicted 
loans at interest; and that, during the whole of the middle 
ages, throughout the larger states of Europe, this traffic should 
have been reputed infamous, and abandoned to the Jews. — 
The little manufacturing or commercial industry of those days 
was kept alive by the scanty capital of the dealers and me- 
chanics themselves; and agricultural industry, which was pur- 
sued with somewhat better success, was supported by the ad- 
vances of the lords and great proprietors, who employed their 
serfs or retainers on their own account. Loans were contract- 
ed for, not with a view of profitably employing the money, 

* Vidt infrd. Book III. on the subject of repj'o4i!ctiye consumption. 



300 ON DISTRIBUTION. book ii. 

but merely to satisfy some urgent want, so that the exaction 
of interest was profiting by a neighbour's distress; and it may 
easily be conceived, that a religion, founded on the principle 
of fraternal love, as the Christian religion is, must disapprove 
a calculating spirit, that even now is a stranger to generous 
bosoms, and repugnant to the common maxims of morality. — 
Montesquieu* attributes the decline of commerce to this pro- 
scription of loans at interest; which was undoubtedly one 
cause, although indeed, it was one amongst many. 

The progressive advance of industry has taught us to view 
the loan of capital in a different light. In ordinary cases, it is 
no longer a resource in the hour of emergency, but an agent, 
an instrument, which may be turned to the great benefit, as 
well of society, as of the individual. Henceforward, it will be 
reckoned no more avaricious or immoral to take interest, than 
to receive rent for land, or wages for labour; it is an equitable 
compensation adjusted by mutual convenience; and the con- 
tract, fixing the terms between borrower and lender, is of pre- 
cisely the same nature, as any other contract whatsoever. 

In ordinary cases of exchange, however, the transaction is 
ended as soon as the exchange is completed; whereas, in the 
case of a loan, there remains to be calculated the risk the 
lender incurs of never recovering the whole, or at least a part, 
of his capital. This risk is practically estimated, and indem- 
nified by some addition of interest, in the nature of a premium 
of insurance. Whenever there happens to be a question about 
the interest of advances, a careful distinction should be made 
between these, its two component parts; otherwise, there is 
always danger of error; and individuals, or even the agents of 
public authority, will be apt to involve themselves in useless 
and disastrous operations. 

Thus, the practice of usury has been uniformly revived, 
whenever it has been attempted to limit the rate of interest, or 
abolish it altogether. The severer the penalties, and the 
more rigid their exaction, the higher the interest of money 
was sure to rise; and this was what might naturally have been 
expected; for the greater the risk, the greater premium of 
insurance did it require to tempt the lender. At Rome, while 
the republican form of government lasted, the interest of mo- 
ney was enormous, as it was natural to suppose, even if it 
were not a matter of history. The debtors, who are always 
the plebeians, were continually threatening their patrician 
creditors. The laws of Mahomet have prohibited loan at in- 
terest; and what is the consequence in the Mussulman do- 
minions? Money is lent at interest, but the lender must be 
indemnified for the use of his capital, and, moreover, for the 
risk incurred in the contravention of the law. It was the 
same in Christian countries, so long as loan at interest was il- 

* Esprit cles Lois, liv. xsi. c. 20. 



CHAP. VIII. ON DISTRIBUTION. 301 

legal; and where the necessity of borrowing enforced the tole- 
ration of the practice amongst the Jews, such were the hu- 
miliation, oppression, and extortion, to which, on one pretext 
or another, that nation was exposed on this score, that nothing 
short of a very heavy rate of interest could indemnify for such 
repeated loss and mortification. Letters patent of theT'rench 
king John, bearing date in the year 1360, are now extant, 
which authorizes the Jews to lend on pledges at the rate of 4 
deniers per week for every livre of twenty sous, which is 
more than 86 per cent, per ann. ; but, in the year following, 
the same monarch, though recorded as one of the most scru- 
pulous performers of his royal word that our annals can boast 
of, caused the quantity of pure metal contained in the coin to 
be reduced; so that the lenders no longer received back a value 
equal to what they had lent. 

This explanation will alone suffice to justify the very heavy 
interest demanded, without at all taking into calculation, that, 
at a period, when loans were negotiated, not to forward indus- 
trious enterprises, but to support war, to feed extravagance, 
and to further the most hazardous projects; at a period, when 
laws were powerless, and lenders unable legally to enforce 
their claims against their debtors, it required a very ample pre- 
mium to cover the risk of non-payment. In fact, the premium 
of insurance absorbed the far greater part of what passed under 
the name of interest, or usury; and the actual bond fide inte- 
rest, the rent for the use of capital lent, was reduced to a very 
trifle; for, though a capital was scarce, there is reason to sup- 
pose, that productive occupation was still more so. Of the 86 
per cent, interest paid in the reign of king John, perhaps not 
more than 3 or 4 per cent, was the equivalent for the produc- 
tive service of the capital advanced; for all productive labour 
is better paid now, than it was in those days; and even now 
a-days the rent of capital can scarcely be reckoned higher than 
5 per cent.; the excess is so much premium of insurance for the 
lender's indemnity. 

Thus, the ratio of the premium of insurance, which fre- 
quently forms the greater portion of what is called interest, 
depends on the degree of security presented to the lender; 
which security consists chiefly in three circumstances: — 1. 
The safety of the mode of employment; 2. The personal abili- 
ty and character of the borrower; 3. The good government 
of the country he happens to reside in. We have just seen, 
how much the hazardous purposes, to which loans were ap- 
plied in the middle ages, enhanced the premium of insurance 
necessarily paid to the lender. It is the same with all peril- 
ous investments of capital, with a difference in degree only. 
The Athenians of old, made a distinction between marine in- 
terest, or interest of capital afloat, and land interest, or inte- 
rest on shore; the former was rated at 30 per cent., more or 
less, per voyage, whether to the Euxine, or to any port in the 



302 ON DISTRIBUTION. book ii. 

Mediterranean.* As two such voyages were accomplished with 
ease in the year, the annual marine interest may be rated at 
about 60, while other interest was commonly not more than 
12 per cent. Supposing that, of the 12 per cent., one half was 
assigned to cover the risk of the lender; we shall find, that the 
mere annual rent or hire of money at Athens, was 6 per cent, 
only, which I should still think above the mark; yet, suppo- 
sing it to have been so high, the marine interest allowed 54 
per cent, for insurance of the lender's risk. So enormous a 
premium must be attributed in part to the barbarous habits 
then prevalent among the nations with whom they traded; for 
different nations were then much greater strangers to each 
other, than they are at present, and commercial laws and cus- 
toms much less respected; and in part to the imperfections of 
the art of navigation. There was more danger in a voyage 
from the Piraeus to Trapezus, though but three hundred 
leagues distant, than there is now in one from L'Orient to Chi- 
na, which is a distance of seven thousand. Thus, the improve- 
ment of geography and navigation have contributed to lower 
the rate of interest, and ultimately to reduce the cost price of 
products. Loans are sometimes contracted, not for a produc- 
tive investment, but for mere barren consumption. Transac- 
tions of this kind should always awaken the suspicion of the 
lender, inasmuch as they engender no means of re-payment of 
either principal or interest. If charged upon a growing reve- 
nue, they are, at all events, an anticipation of that revenue; 
and if charged upon any of the sources of revenue, they afford 
the means of dissipating the particular source itself. If there 
be the security neither of revenue nor of its source, they barely 
place the property of one person at the wanton disposition of 
another. 

Among the circumstances incident to the nature of the em- 
ployment, which influence the rate of interest, the duration of 
the loan must not be forgotten; ceteris paribus, interest is 
lower when the lender can withdraw his funds at pleasure, or 
at least in a very short period; and that both on account of 
the positive advantage of having capital readily at command, 
and because there is less dread of a risk, which may probably 
be avoided by timely retreat. The facility of immediate ne- 
gotiation presented by the transferrable bills and notes of mo- 
dern governments, is one principal cause of the low rate of in- 
terest, at which many of these governments are enabled to 
borrow, {a) This interest, in my opinion, hardly covers the 

* Voyage d' Anacharsis, torn. iv. p. 371. 



(a) This is strongly illustrated by the unfunded and the funded debt of 
Great Britain. The former in the shape of exchequer and treasury bills, 
bears a rate of interest considerably lower than the latter m the shape of 
stock; because the bills are convertible readily at par; whereas, the usual 
rise and fall of the capital stock is much gi'cater, than the interest upon it 
for short periods. T. 



CHAP. VIII. ON DISTRIBUTION. 303 

risk of the lender; but he always reckons on the certainty of 
selling his securities before the moment of catastrophe, should 
any serious alarm be entertained. The public securities that 
are not negotiable, bear a much higher interest; such, for in- 
stance, as the old personal annuities in France, which the go- 
vernment generally sold at the rate of 10 per cent., a high 
average for young lives. Wherefore, the Genevese acted 
with excellent judgment, in settling their annuities on thirty 
lives of well known public characters. By this means, they 
made their annuities negotiable, and so contrived to get the 
rate of interest of securities not negotiable, upon securities 
that were negotiable. 

About the vast influence of personal character and ability 
in the borrower, in determining the amount of the premium 
of insurance to the lender, there can be no doubt whatever: 
they are the basis of what is called personal credit; and it is 
hardly necessary to say, that a person in good credit borrows 
at a cheaper rate, than another who has none. 

Next to approved integrity and probity, what most contri- 
butes to the credit of an individual or of a government is, past 
punctuality in performance of engagements; this is, in fact, the 
very corner-stone of credit, and one that seldom proves inse- 
cure. But why, it may be asked, may not a man who has 
never yet made default in his payments, fail the very next mo- 
ment? There is very little probability that he will, especially 
if his punctuality be of long standing. For, to have been ever 
punctual in his payments, he must either have always been 
possessed of value in hand sufficient to meet demands upon 
him; that is to say, he must have been a man of property over 
and above his debts, which is the best possible ground of trust; 
or else he must have managed matters so well, and have spe- 
culated with so much judgment and safety, as always to have 
had his returns arrive before the calls became due; thus evinc- 
ing a degree of ability and prudence, which afford an excellent 
guarantee for his future punctuality. The converse of this is 
the reason, why a merchant, that has once failed or hesitated 
in the performance of his engagements, thenceforward loses 
his credit entirely. 

Finally, the good government of the country, where the 
debtor resides, reduces the risk of the creditor, and, conse- 
quently, the premium of insurance he is obliged to demand to 
cover that risk. Hence it is, that the rate of interest rises, 
whenever the laws and their administration do not ensure the 
performance of engagements. It is yet more aggravated, when 
they excite to the violation of them; as when they authorize 
non-payment, or do not acknowledge the validity of bond fide 
contracts. 

The resort to personal restraint against insolvent debtors 
has been generally considered as injurious to the borrower; 
but is, on the contrary, much in his favour. Loans are made 
more willingly, and on better terms, where the rights of the 



304 ON DISTRIBUTION. book ir. 

lender are best secured by law. (a) Besides, the encourage- 
ment to accumulate capital is thereby enlarged; wherever in- 
dividuals mistrust the mode of investing their savings, there 
is a strong inducement to every one to consume the whole of 
his income, and this consideration will, perhaps, help to ex- 
plain a curious moral phenomenon; namely, that irrisistible 
avidity for excessive enjoyment, which is a common symptom 
in times of political turbulence and confusion.* 

However, while on the subject of the necessity of personal 
severity towards debtors, I can not recommend the practice 
of imprisonment; to confine a debtor is to command him to 
discharge his debts, and at the same time deprive him of the 
means of so doing. There seems more reason in the Hindu 
institution, giving the creditor the option of seizing the person 
of his insolvent debtor, and confining him at the creditor's 
own home to compulsory labour, for the creditor's benefit. t — 
But, whatever be the means, whereby the public authority en- 
forces the payment of debts, they must always be inefiective, 
if law be partially or capriciously administered. The moment 
a debtor is, or hopes to be, out of his creditor's reach, there is 
a risk to be run by the creditor, which is of value, and must be 
indemnified. 

After having thus detached from the rate of bare interest all 
that is paid as premium of insurance to the lender against the 
risk of total or partial loss of his capital, it remains to consider 
that part, which is purely and simply interest; that is to say, 
rent paid for the utility and the use of capital. 

Now this portion of the gross sum called interest is larger, 
in proportion as the supply of capital available for loans is less; 
and as the demand of capital for that specific object is greater; 

* See the description of the plag'ue at Florence, as given after Boccacio 
by Sismondi, in his admirable liistoire des R^puhUques d'ltalie. A similar 
effect was observed at several of the most dreadful epochs of the French 
revolution. 

•}• Raynal, Hlsioire PhilosopJiique. torn. i. 



(a) The personal restraint of the debtor has no where been carried to 
such extreme leng-th as in England. Not only was a debtor at one time 
liable to imprisonment joenc/en/e lite, and before the debt was legally estab- 
lished, and that for the smallest sum; but the term of his imprisonment in 
execution after judgment was absolutely unlimited. The hardship, in both 
these particulars, was partially remedied before the erection of our insol- 
vent code; and that code has still further alleviated the condition of the 
debtor. But the whole system is vitiated, and in a great measure, neutral- 
ized, by total neglect of all measures for the prevention of insolvency, in 
limine. The grand expedient is, publicity of property; which, in the first 
place, gives tlie creditor ihe means of estimating beforehand, and with 
more accuracy, the grounds and fair extent of his debtor's credit; and in 
the next, enables him, in case of default, to resort to those means, instead 
of endeavouring to discover or extort them by personal restraint. Thus it 
is, that one eiTor of policy is sure to engender another. T. 



CHAP. VIII. ON DISTRIBUTION. 305 

and again, that demand is the greater in proportion to the 
more numerous and more hicrative employments of capital. 
Consequently, a rise in the rate of interest does not infallibly 
or universally denote, that capital is grown scarcer; for, pos- 
sibly, it may be a sign, that its uses are multiplied. Smith 
has remarked this consequence upon the close of the very suc- 
cessful war on the part of England, which terminated with the 
peace of 1763.* The rate of interest then advanced instead 
of declining; the important acquisitions of England had opened 
a new field for her commercial enterprise and speculation; ca- 
pital was not diminished in quantity, but the demand for it was 
increased; and the rise of interest, which ensued, though, in 
most cases a sign of impoverishment, was, in this, a conse- 
quence of the acquisition of new sources of wealth. 

France, in 1812, experienced the opposite effect of a cause 
directly the reverse. A long and destructive war, which had 
annihilated almost all external communication; exorbitant tax- 
ation; the ruinous system of licences; the commercial enter- 
prises of the government itself; frequent and arbitrary altera- 
tions in the duties on import; confiscation, destruction, vexa- 
tion; in fine, a SA'^stem of administration uniformly avaricious 
and hostile to private interest, had rendered all enterprises of 
industry difficult, hazardous, and ruinous in the extreme. 
The aggregate capital of the nation was probably on the de- 
cline; but the beneficial employment of it became still more 
rare as well as dangerous; so much so, that interest never fell 
so low in France as at that period; and, what is in general 
the sign of extreme prosperity, was then the effect of extreme 
distress. 

These exceptions serve but to confirm the general and eter- 
nal law, that the more abundant is the disposable capital, in 
proportion to the multiplicity of its employments, the lower 
will the interest of borrowed capital fall. With regard to the 
supply of disposable capital, that must depend on the quantum 
of previous savings. On this head, I must refer to what I have 
before said upon the subject of the formation of capital.! 

* Wealth of Nations, book i. c. 9. 

■\ iSuprci, Book I. chap. 11. It has been remarked, that the rate of in- 
terest is usually somewhat lower in towns, tlian in country places. Wealth 
of Nations, book i. c. 9. The reason is plain. Capital is for the most part 
in the hands of the wealthy residents of the towns, or at least of persons 
who resort to them for their business, and carry with them the commodity 
they deal in, i. e. capital, which they do not like to employ at much distance 
from their own inspection. Towns, and particularly great cities, are the 
grand markets for capital, perhaps even more than for labour itself; accord- 
ingly, labour is there comparatively dearer than capital. In the country, 
where there is little unemployed capital, the contrary is observable. Thus, 
usury is more prevalent in country places; it would be less so, if the busi- 
ness of lending were more safe and in better repute, (a) 



(a) These remarks are just in the main; but the advantage of town over 
46 



306 ON DISTRIBUTION. book ii. 

If it be desired, that capital in search of employment, and 
industry in search of capital, should both be satisfied in the 
fullest manner, entire liberty of dealing must be allowed in 
all matters touching; loan at interest. Disposable capital, be- 
ing thus left to itself, will seldom remain long unemployed; 
and there is every reason to believe, that as much industry 
will be called into activity, as the actual state of society will 
admit. 

But it is essential to pay a strict attention to the meaning 
of the term, supply of disposable capital; for this alone can 
have any influence upon the rate of interest; it is only so much 
capital, as the owners have both the power and the will to dis- 
pose of, that can be said to be in circulation. A capital, al- 
ready vested and engaged in production or otherwise, is no 
longer in the market, and therefore no longer forms a part of 
the total circulating capital; its owner is no longer a competi- 
tor of other owners in thp business of lending, unless the em- 
ployment be one, from which capital may be easily disengag- 
ed and transferred to other objects. Thus, capital lent to a 
trader, and liable to be withdrawn from his hands at short 
notice, and, a fortiori, capital employed in the discount of 
bills of exchange, which is one way of lending among com- 
mercial men, is capital readily disposable and transferable to 
any other channel of employment, which the owner may 
judge convenient. 

Capital employed by the owner on his own account, in a 
trade that may be soon wound up, in that of a grocer for in- 
stance, stands nearly in the same predicament. The articles 
he deals in find at all times a ready market; and the capital 
thus employed, may be realized, repaid if lent, re-lent and re- 
employed in other trades, or applied to any other use. It is 
always either in actual circulation, or at least on the point of 
being so. Of all values, the one most immediately disposable 
is that of money. But capital embarked in the construction 
of a mill, or other fabric, or even in a moveable of small di- 
mensions, is fixed capital, which, being no longer available 
for any other purpose, is withdrawn from the mass of circu- 
lating capital, and can no longer yield any other benefit, than 
that of the product wherein it has been vested. Nor should it 
be lost sight of, that, even though the mill or other fabric be 
sold, its value, as capital, is not by that means restored to cir- 
culation; it has merely passed from one proprietor to another. 
On the other hand, the disposable value, wherewith the buyer 
has made the purchase, is not thrown out of circulation, hav- 
ing merely passed from his into the seller's hands. The sale 
neither increases nor diminishes the mass of floating capital in 



countr)^, in this particular, may be reduced to a very trifle, by the ease 
of internal communication. In England the difference is scarcely per- 
ceptible. T. 



CHAP. viir. ON DISTRIBUTION. 307 

the market. Attention to this circumstance is essential to the 
forming a correct estimate of the causes, that determine the 
rate, as well of interest on capital, as likewise of profit accru- 
ing from capital employed, which we are about to consider 
presently. 

It has been sometimes supposed, that capital is multiplied 
by the operation of credit. This error, though frequently re- 
curring in works professing to treat of political economy, can 
only arise from a total ignorance of the nature and functions of 
capital. Capital consists of positive value vested in material 
substance, and not of immaterial products, which are utterly 
incapable of being accumulated And a material product evi- 
dently can not be in more places than one, or be employed 
by more persons than one, at the same identical moment. The 
works, machinery, utensils, provisions, and stock in hand, 
composing the capital of a manufacturer, may possibly be 
wholly borrowed; in which case, he will be acting upon a hir- 
ed capital, and not on one of his own: yet, beyond all ques- 
tion, that capital can be made use of by no one else, so long 
as it remains within his control and management: the lender 
has parted with the power of otherwise disposing of it for the 
time. A hundred others might have equal security and cre- 
dit to offer; but their applications could not multiply the 
volume of disposable capital, and could have no other effect 
than to prevent other capital from remaining idle and out of 
employ.* 

It is not to be expected, that I should here enter upon a com- 
putation of the motives of affection, consanguinity, generosity, 
or gratitude which may occasionally give rise to the loan of 
capital, or influence the amount of interest demanded for it. 
Every reader must take upon himself to appreciate the influ- 
ence of moral causes upon the laws of political economy, which 
alone we profess to expound. 

To limit capitalists to the lending at a certain fixed rate on- 
ly, is to set an arbitrary value on their commodity, to impose 

* Vide suprd. Book I. chap. 10, 11, on the mode of employing, and on 
the transformation and accumulation of capital. What is here said does not 
militate against the positions laid down in Book I. chap. 22. on the repre- 
sentatives of money. A bill of exchange, with good names upon it, is 
only an expedient for borrowing of a third person actual and positive 
value, in the interim between the negotiation and the maturity of the bill. 
Bills and notes, payable on demand, or at sight, whether issued by the go- 
vernment, or by private banking-establishments are a mere substitution of 
a cheap paper-agent of circulation, in the place of a costly and metallic 
agent. The monetary functions of the metal being executed by the paper, 
the former is set free for other objects; and, inasmuch as it is exchangea- 
ble for other commodities or implements of industry, a positive accession 
is made by the substitution to the natural capital; but no further. The 
degree of the accession is hmited strictly to the amount of value required 
for the business of circulation, and dispensed with by this expedient; which 
amount is a mere trifle, in comparison with the total value of the national 
capital. 



308 ON DISTRIBUTION. book ii. 

a maximum of price upon it, and to exclude, from the mass of 
floating or circulating capital, all that portion, whose proprie- 
tors can not, or will not, accept of the limited rate of interest. 
Laws of this description are so mischievous, that it is well they 
are so little regarded as they almost always are, the wants of 
borrowers combining with those of lenders, for the purpose of 
evading them; which is easily managed, by stipulating for bene- 
fits to the lender, not, indeed, bearing the name of interest, al- 
though really the same thing in the end. The only consequence 
of such enactments is, to raise the rate of interest, by adding 
to the risks, to which the lender is exposed, and against which 
he must be indemnified. It is somewhat amusing to find that 
those governments, which have fixed the rate of interest, have 
almost invariably themselves set the example of breaking their 
own laws, by borrowing at higher than legal interest in their 
own case. 

That interest should be fixed by law, is highly proper and 
necessary; but it should be fixed only in cases, where there is 
no previous agreement about it; as in the case of a legal re- 
covery of a sum with interest. And, in such case, I think the 
interest fixed by law should be estimated at the lowest rate, 
that is usually paid by individuals; because the lowest rate is 
that paid by the safest investments. Now, it is quite consist- 
ent with justice, that the withholder of capital should restore 
it even with interest; but that is in the supposition, that it has 
remained all the while in his possession; which it can not be 
supposed to have done, without his having invested it in the 
way the least hazardous, and consequently without his hav- 
ing drawn from it at least the lowest interest it would have 
afforded. 

But this rate should not be denominated the legal interest, 
because the rate of interest ought no more to be restricted, or 
determined by law, than the rate of exchange, or the price of 
wine, linen, or any other commodity. And this is the proper 
place to expose a very prevalent error. 

Capital, at the moment of lending, commonly assumes the 
form of money; whence it has been inferred, that abundance 
of money is the same thing as abundance of capital; and, con- 
sequently, that abundance of money is what lowers the rate 
of mterest. Hence the erroneous expressions used by men of 
business, when they tell us, that money is scarce, or that mo- 
ney is plentiful; which, it must be confessed, are equally just 
and appropriate, as the very incorrect term, interest of money. 
The fact is, that abundance or scarcity of money, or of its 
substitute, whatever it may be, no more affects the rate of in- 
terest, than abundance or scarcity of cinnamon, of wheat, or 
of silk. The article lent is not any commodity in particular, 
or even money, which is itself but a commodity, like all 
others; but it is a value accumulated and destined to beneficial 
investment. 



CHAP. VIII. ON DISTRIBUTION. 309 

A man, who is about to lend, converts into money the aggre- 
gate value he means to devote to that particular purpose; and 
the borrower no sooner has it at command, than he ex- 
changes it for something else, the money that has effected this 
operation, proceeds forthwith to effect another similar or dis- 
similar one, God knows what; the payment of a tax perhaps, 
or subsidy of an army. The value lent has assumed but for a 
moment the form of money, in the same manner, as we have 
traced revenue received and spent, to pass through the same 
temporary form, the identical pieces of money serving per- 
haps a hundred times in the course of a year, to transfer equi- 
valent portions of income. So, likewise, the same sum of mo- 
ney, that has served to transfer a value from the hands of one 
lender into those of a borrower, may, after infinite intervening 
transfers, perform the like office between a second borrower 
and lender, without stripping the former borrower of any part 
of the value he has received. In reality, then, it is value 
which has been borrowed, and not any particular sort of metal 
or of merchandise. All kinds of merchandise may be lent and 
borrowed, as well as money; nor does the rate of interest at 
all depend upon the quality of the object lent or borrowed. 
Nothing is more common in trade, than to lend and borrow 
other objects than money. When a manufacturer buys the 
raw material of his business at a certain credit, he, in fact, bor- 
rows the wool, or cotton, as the case may be, making use of 
the value of those materials in his concern; and their quality 
has no influence on the interest, with which he credits the 
seller.* The glut or scarcity of the commodity lent only af- 
fects its relative price to other commodities, and has no influ« 
ence whatever on the rate of interest upon its advance or loan. 
Thus, when silver money lost three-fourths of its former rela- 
tive value, although four times as much of it was necessary to 

* Many loans on interest are made without bearing that name, and with- 
out implying a transfer of money. When a retail dealer supplies his shop 
by bnying of tlie manufacturer or wholesale dealer, he bon-ows at interest, 
and repays, either at a certain term, or before it, retaining the discount, 
which is but the return of the interest charged him in addition to the price 
of the goods. When a provincial dealer makes a remittance to a banker 
at Paris, ancT afterwards draws upon this bankei", he lends to him, during 
the time that elapses between the arrival of tlie remittance and the pay- 
ment of the draft. The interest of this advance is allowed in the interest 
account attached by the banker to the merchant's account-current. In the 
Cours d'Economie PoUtique compiled by Slorch, for the instruction of the 
young grand-dukes of Russia, and printed at Petersburgh, torn. vi. p. 103, 
we are informed, that the English merchants, or factors settled in Russia, 
sell to their customers at a credit of twelve months; which enables the Rusr 
sian purchaser of current articles, to realize long before the day of ]iayment, 
and turn the proceeds to account in the interim; thereby operating with 
English capital, never intended to be so employed. It is to be presumed, 
that the English indemnify themselves for this loss of interest, by the addi- 
tional price of their goods. But the average rate of profit upon capital in 
Russia is so high, that even this round-about way of borrowing is sufficient- 
ly profitable to the native dealers. 



310 ON DISTRIBUTION. book ii. 

pass a loan of the same extent of capital, the ratio of interest 
remained unaltered. The quantity of specie or money, in the 
market, might increase ten-fold, without multiplying the 
quantity of disposable, or circulating capital.* 

Wherefore, it is a great abuse of words, to talk of the inte- 
rest of money; and probably this erroneous expression has led 
to the false inference, that the abundance or scarcity of money 
regulates the rate of interest.! Law, Montesquieu, nay even 
the judicious Locke, in a work expressly treating of the 
means of lowering the interest of money, have all fallen into 
this mistake; and it is no wonder that others should have been 
misled by their authority. The theory of interest was wrap- 
ped in utter obscurity, until Hume and SmithJ dispelled the 
vapour. Nor will it ever be clearly comprehended except by 
such as shall have acquired a correct notion of what has, 
throughout this work, been denominated capital, and shall pro- 
ceed in the conviction, that the object lent or borrowed, is not 
a particular commodity or object of merchandise, buta portion 
of value, — of the aggregate value of the capital available for 
that object; and that the per centage paid for the use of this 
portion of capital, at all times and places, depends on the re- 
lative supply and demand of capital to be lent, and is wholly 
independent of the specific form or quality of the commodity, 
wherein the loan is made, whether it be money, or any other 
article whatever. 



* This is no contradiction to the former position, that the precious me- 
tals form part of the capital of society. They form an item of capital, but 
not of disposable, ov lendabk capital; for they are already employed, and not 
in search of employment; — employed in the business of circulating value 
from one hand to another. If their supply exceed the demand for this ob- 
ject, they are sent to other parts, where their price continues higher; if 
their general abundance lower their price every where, the sum of their 
value is not increased, but a larger quantity of them is given in exchange 
for the same value in other commodities. 

f If interest were always low in proportion to the greater supply of mo- 
ney, it would be lower in Portugal, Brazil, and the West Indies, than in 
Germany, Switzerland, &c. which is by no means the case. 

t Essays of D. Hume, part ii. ess. 4. Wealth of Nations, Book ii. c. 4. 
It is well for the student in political economy, that Locke and Montesquieu 
have not written more upon it; for the talent and ingenuity of a writer serve 
only to perplex a subject he is not thoroughly acquainted with. To say the 
truth, a man of lively wit can not satisfy his own mind without a degree of 
speciousness and plausibility, which is of all things the most dangerous to 
the generality of readers, who are not sufficiently grounded in principle to 
discover an error at first sight. In those sciences, which consist in mere 
compilation and classification, as in botany or natural history, one can 
scarcely read too much; but, in those dependent upon the deduction of ge- 
neral laws from particular facts, the better course is to read little, and se- 
lect that little with judgment. 



CHAP. VIII. ON DISTRIBUTION. 311 



SECTION II. 



Of the Profits of Capital. 

We have now sufficiently considered the nature and motive 
of the interest paid by the borrower to the lender of capital, 
and, though it appears pretty plainly, that this interest is com- 
pounded of the rent of the capital, and of the premium of in- 
surance against the risk of its partial or total loss, we have also 
seen enough, to comprehend the extreme difficulty of severing 
and distinguishing these two ingredients. 

Let us then proceed, in the next place, to investigate the 
causes of the profit derivable from the employment of capital, 
whether by a borrower or by the proprietor nimself: to which 
end it will be necessary, in the outset, to sever it from the 
profit of the industry, that turns it to account; and here again 
we shall meet with the greatest difficulty, in drawing the line 
of distinction; though it is easy to perceive, that these two 
classes of profit, generally speaking, are combined in the re- 
compense or portion of the adventurer. Smith, and most of 
the English writers on this science, have omitted to notice 
this distinction; they comprise under the general head of the 
profit of capital, or stock, as they term it, many items, which 
evidently belong to the head of the profit of industry. * 

Perhaps an approximation may be made to the accurate ap- 
preciation of that part of the aggregate profit, which appertains 
to the capital, and that, which appertains to the industry em- 
ploying it, respectively, by comparing the mean ratio of total 

* This omission is justified by Smith, on the following grounds. " Let us 
suppose," says he, "that in some particular place, where the common annual 
profits of manufacturing stock are 10 per cent., there are two different 
manufactures, in one of which the coai-se materials annually v/rought up 
cost only 700/., while the finer materials in the other cost 7000/. If the la- 
bour in each cost 300/. per annum, the capital employed in the one will 
amount only to 1000/. ; whereas, that employed in the other will amount 
to 7300/. At the rate of 10 percent., therefore, the undertaker of the one 
will expect a yearly profit of 100/. only, and that of the other 730/.;" and 
he goes onto infer, "that the profit is in proportion to the capital, and not 
to the labour and skill of inspection and direction." But the instance put 
is altogether inconclusive: and it is equally easy to suppose the case of two 
manufactures, carried on in the same place, and in the same line, each with 
an equal capital of 1000/. ; the one under the conduct of an active, frugal 
and intelligent manager, the other under that of an idle, ignorant, and ex- 
travagant one; the former yielding a profit of 150/. per annum, the latter one 
of 50/. only. The difference in this case will arise, not from any difference in 
the respective capitals employed, but from the difference in the skill and 
industry employing them; which latter qualities will be more productive iii> 
the one instance than in the other. 



313 ON DISTRIBUTION. bookii. 

profit with the mean ratio of the difference of profit in the same 
line of business, which seems a fair index of the difference of 
the skill and labour engaged. We will suppose two houses, in 
the fur trade for example, to work each upon a capital of 
100,000 /r., and to make, on the average, an annual profit, the 
one of 24,000 y>., the other of 6,000^r. only; a difference of 
18,000 yr,, fairly referable to the different degree of skill and 
labour, the mean of which is 9000yr./ this may be considered 
as the gains of industry, which, deducted from 15,000 yV.; the 
mean profit of the trade, will leave 6000 /r. for the profit of the 
capital embarked in it. 

This example I could suggest as a means, rather of distin- 
guishing those items of profit thus mixed up together, than of 
estimating their respective ratio with any tolerable certainty. 
But, without any index to the precise line of demarcation be- 
tween the profits of capital and those of the industry employ- 
ing it, we may take it for granted, that the former will always 
be proportionate to the risk of partial or total loss, and to the 
duration of the employment. In practice, adventurers, having 
capital at their command, always weigh before hand the ad- 
vantages and disadvantages of the different modes of invest- 
ment, as specified above,* and naturally prefer, ceteris pari- 
bus, those presenting the smallest risk and the quickest return; 
so that there is less competition of capital for hazardous and 
long-winded adventurers; indeed, none whatever is embarked 
in them, unless they hold out a rate of profit so much above 
the average rate, as to tempt the capitalist to run the risk. 
Theory, therefore, leads to the presumption, which is confirm- 
ed by the test of experience, that the profit of capital is high, 
in proportion to the hazard of the adventure, and to the length 
of its duration. 

When a particular employment of capital, the trade with 
China for instance, does not afford a profit proportionate, not 
only to the time of the detention, but likewise to the danger 
of loss, and the inconvenience of a long, perhaps a two years' 
duration of one single operation before the returns come to 
hand, a proportion of the capital is gradually withdrawn from 
that channel; the competition slackens, and the profits advance, 
until they rise high enough to attract fresh capital, t 

This will serve also to explain, why the profits, derivable 
from a new mode of employment, are larger than those of 
common and ordinary employments, where the production and 
consumption have been well understood for years. In the 

* Book II. chap, 7. sect. 3. 

j- To say nothing- of the other motives, that attract industry towards any 
particular profession or repel it thence, which have been noticed in the 
preceding- chapter. These motives sometimes operate all in the same di- 
rection, and then the profits of both industry and capital rise or fall to- 
gether; when they act in opposite dii'ections, tlie difference on the profit 
of capital balances that on the profit of industry; or vice versa. 



GHAP. nil. ON DISTRIBUTION. 313 

former case, competition is deterred by the uncertainty of suc- 
cess; in the latter, allured by the security of the employment. 

In short, in this matter, as in all others, where the interests 
of mankind clash one with another, the ratio is determined by 
the relative demand and supply for each mode of employment 
of capital respectively. 

It IS a maxim with Smith and those of his school, that hu- 
man labour was the first price, — the original purchase-money, 
paid for all things. They have omitted to add, that, for every 
object of purchase, there is, moreover, paid, the agency and 
co-operation of the capital employed in its production. Is not 
capital itself, they will say, composed of accumulated products, 
— of accumulated labour? Granted: but the value of capital, 
like that of land, is distinguishable from the value of its pro- 
ductive agency; the value of a field is quite different from that 
of its annual rent. When a capital of 1000 fr. is lent, or ra- 
ther let on hire, for a year, in consideration of 50 fr. more or 
less, its agency is transferred for that space of time, and for 
that consideration; besides the 50 fr. the lender receives back 
the whole principal sum of 1000 fr., which is applicable to 
the same objects as before. Thus, although the capital be 
itself a pre-existent product, the annual profit upon it is an en- 
tirely new one, and has no reference to the industry, wherein 
the capital originated. 

Wherefore, when a product is ultimately completed by the 
aid of capital, one portion of its value must go to recompense 
the agency of the capital, as well as another to reward that of 
the industry, that have concurred in its production. And the 
portion so applied is wholly distinct from the value of the capi- 
tal itself, which is returned to the full amount, and emerges 
in a perfect state from its productive employment. Nor does 
this profit upon capital represent any part of the industry en- 
gaged in its original formation. 

From all which it is impossible to avoid drawing this con- 
clusion, that the profit of capital, like that of land and the 
other natural sources, is the equivalent given for a productive 
service, which, though distinct from that of human industry, 
is nevertheless its efficient ally in the production of wealth. 



SECTION III. 



Of the Employments of Capital ynost beneficial to Society. 

To the capitalist himself, the most advantageous employ-^ 

ment of capital is that, which with equal risk yields the largest 

profit; but what is to him most beneficial, may perhaps not be 

so to the community at large; for capital has this peculiar fa- 

47 



S14 ON DISTRIBUTION. book ii. 

culty, that, besides being productive of a revenue peculiar to 
itself, it is, moreover, a means, whereby land and industry 
may generate a revenue likewise. This is an exception to the 
general principle, that what is the most productive to the in- 
dividual, is so to the community at large. A capital lent to a 
foreign country may very probably produce to the proprietors 
and the nation the highest possible rate of interest; but can af- 
ford no assistance towards extending the revenue of the na- 
tional territory, or for the national industry, as it would do, 
if employed within the pale of the nation. 

The portion of capital embarked in domestic agriculture is 
employed best for the interests of a nation; it enhances the 
productive power of the land and of the labour of a country. 
It augments at once the profits of industry and those of real 
property. Capital, employed under intelligent direction, may 
make barren rocks to bear increase. The Gevennes, the Py- 
renees, and the Pays de Vaud, present on every side the view 
of mountains, once a scene of unvaried sterility, now covered 
with verdure and enriched by cultivation. Parts of these 
rocks have been blasted with gunpowder, and the shivered 
fragments employed in the construction of terraces one above 
another, supporting a thin stratum of earth carried thither by 
human labour. In this manner is the barren surface of the 
rock transformed into shelving platforms, richly furnished 
with verdure, and teeming with produce and population. The 
capital originally expended in these laborious improvements 
might, perhaps, have produced larger profits to the capitalist, 
if employed in external commerce; but probably the total re- 
venue of the district would have been inferior in amount. 

For a similar reason, capital can not be more beneficially 
employed, than in strengthening and aiding the productive 
powers of nature. Well contrived and useful machinery pro- 
duces more than the interest of its prime cost; and, besides af- 
fording additional profit to the proprietor, benefits the con- 
sumer and the community at large, to the full extent of the 
saving effected by its means; for every thing saved is so much 
gain. 

The productive employments, that rank next in point of 
national benefit, are those of manufacture and internal com- 
merce: for the profits of the industry they set in motion are 
earned at home; whereas, capital embarked in foreign trade 
benefits the industry and natural resources of all nations in- 
discriminately. 

The employment of capital, that tends least to the national 
advantage, is the carrying trade between one foreign country 
and another. 

When a nation is possessed of an immense accumulation of 
capital, it will do well to embark it in all these different chan- 
nels of industry; for they are all lucrative, and in nearly equal 
degree to the capitalist, though in very different degrees to the 
nation at large. What prejudice can arise to the lands of Hoi- 



CHAP. VIII. ON DISTRIBUTION. 315 

land, which are already in a high state of cultivation and 
management, and want neither clearing nor enclosing, or what 
injury be sustained by nations possessed of little territory, like 
the old states of Venice, Genoa, and Hamburgh, from the 
large investments of national capital in the carrying trade? It 
flowed into that particular channel of employment, merely 
because there was no other open to it. But that class of trade, 
and generally all external commerce, is ill adapted to a nation 
deficient in capital, and having not enough to keep its agricul- 
ture and manufacture in activity; and it would be absurd for 
its government to give premature encouragement to those ex- 
ternal branches of industry; for such a measure would but 
check the employment of capital in the manner best calculated 
to increase the national revenue. China, though it is the 
largest empire in the world, and must possess the greatest ag- 
gregate revenue, since it maintains the most numerous and 
dense population, abandons to foreigners almost all its exter- 
nal commerce. Undoubtedly, in her present condition, she 
would be a gainer by extending her external relations of com- 
merce; but she aifords a very striking example of the pros- 
perity attainable witliout them. 

It is very fortunate, that the natural course of things impels 
capital rather into those channels, which are the most benefi- 
cial to the community, than into those, which afford the largest 
ratio of profit. The investments generally preferred are those 
that are nearest home; whereof the first and foremost is the 
improvement of the soil, which is justly considered the most 
safe and permanent; the next, manufacture and internal com- 
merce; and the last of all, external commerce, the trade of 
transport, and the commerce with distant nations. The owner 
of a capital, especially of a moderate one, will embark it ra- 
ther under his own superintendence, than in distant and re- 
mote concerns. He is apt to think his risk too hazardous, 
when he loses sight of his property for any considerable length 
of time, when he consigns it to strangers, or can expect only 
tardy returns, or is exposed to the chances of litigation with 
fraudulent debtors, who may take advantage of their unsettled 
habits of life, or of the laws of foreign countries, with which 
he is himself unacquainted. Nothing, but the bait of exclu- 
sive privilege and monopoly-profit, or the violent derange- 
ment of internal industry, can induce an European nation, 
not possessed of a large surplus capital, to engage in the colo- 
nial or East India trade. (1) 



(1) [The reasoning of this whole section, appears to me, to be unsound 
and inconclusive. Tliere is no distinction, in point of productiveness, be- 
tween any of the various employments of capital. There can, in short, be 
no line drawn between the difFei'ent productive channels, into which capi- 
tal may be directed. Whatever occupations tend to supply the wants and 
increase the comforts and accommodations of life, are, in the strictsst sense 
of the woi'd, equally productive, and nearly, in the same proportion aug- 



316 ON DISTRIBUTION. book ii. 



CHAPTER IX. 

OP THE REVENUE OF I^AND. 

SECTION I. 

Of the Profit of Landed Property. "* 

Land has the faculty of transforming and adapting to the 
use of mankind an infinity of substances, which, without its 
intervention, would be to them of no service; it yields nutri- 
ment and vegetative juices to the grain, the fruits, and vege- 
tables, whereon we subsist; as well as to the forests, whereof 
we construct our houses, ships, and furniture, and whence we 
derive fuel to keep us warm. Its agency in the production of 

• In the preceding chapter, I have given the interest, precedence of the 

fjrofit, of capital, because the former helps to render the latter more intel- 
igible. I have here adopted a contrary arrangement, because the consi- 
deration of ihe profit of land elucidates the subject of rent. 



ment the national wealth. The capital employed in the carrying trade 
between one foreign country and another is as advantageous to the indivi- 
dual and nation to which it belongs, as the capital employed at home. For, 
as has been already remarked in relation to the profits of industry (vide 
note page 6) in the absence of all restraints, the profits of all the different 
emplovments of capital, will be on an equality or nearly approaching it, in 
as much as any material difference will cause its diversion to a more pro- 
ductive channel, and thus restore the equilibrium. In a word, capital flows 
into the carrying trade only because it yields a greater profit than it other- 
wise would do, did it not take that direction. 

Moreover, there is no exception to tlie general principle, that what is 
most productive to the individual is so to the community at large. Not- 
withstanding our author's assertion to the contrary, in the foregoing section, 
a capital lent to, or employed in, a foreign country, if it produce to the pro- 
prietors and nation the highest rate of interest, must necessarily extend the 
national revenue as much, and afford the same assistance to the national in- 
dustry, as if it were employed within the pale of the nation. If, for example, 
the capital lent abroad, give employment to foreign industry and natural 
agents, it is because the same productive powers at home, when things, I 
must again repeat, are left to take their natural course, are already more 
profitably occupied. Were not this the case, this capital would not seek 
employment abroad, but remain at home. The revenue produced by capi- 
tal employed abroad, if the proprietor does not himself at the same time 
emigrate there, must be the means of calling into activity, and giving a 
gi-eater development to the productive faculties of the national industry 
and land, as this revenue must be consumed, either productively or unpro- 
ductively at home,] Amebicajt Editoh. 



CHAP. IX. ON DISTRIBUTION. 317 

all these commodities may be called, the productive service of 
land. And thence it is, that the profit of the proprietor origi- 
nates. 

He derives a further benefit from the useful substances to 
be extracted from its entrails; the stone, metal, coal, peat, 
&c. &c. 

Land, as we have above remarked, is not the onl)'- natural 
agent possessing productive properties; but it is the only one, 
or almost the only one, which man has been able to appropri- 
ate, and turn to his own peculiar and exclusive benefit. The 
water of rivers and of the ocean has the power of giving mo- 
tion to machinery, affords a means of navigation, and supply 
offish; it is, therefore, undoubtedly possessed of productive 
power. The wind turns our mill; even the heat of the sun co- 
operates with human industry; but happily no man has j^et 
been able to say, the wind and the sun's rays are mine, and I 
will be paid for their productive services. I would not be un- 
derstood to insinuate, that land should be no more the object 
of property, than the rays of the sun, or blast of the wind. 
There is an essential difference between these sources of pro- 
duction; the power of the latter is inexhaustible; the benefit 
derived from them by one man does not hinder another from 
deriving equal advantage. The sea and the wind can at the 
same time convey my neighbour's vessel and my own. With 
land it is otherwise. Capital and industry will be expended 
upon it in vain, if all are equally privileged to make use of it; 
and no one will be fool enough to make the outlay, unless as- 
sured of reaping the benefit. Nay, paradoxical as it may seem 
at first sight, it is, nevertheless, perfectly true, that the man, 
who is himself no share-holder of land, is equally interested in 
its appropriation with the shareholder himself. The savage 
tribes of New Zealand, and of the north-western coast of Ame- 
rica, where the land is unappropriated, have the greatest diffi- 
culty in procuring a precarious subsistence upon fish and game, 
and are often reduced to devour worms, caterpillars, and the 
most nauseous vermin:* not unfrequently even to wage war on 
one another, from absolute want, and to devour their prisoners 
as food; whereas, in Europe, where the appropriation is com- 
plete, the meanest individual, with bodily health, and inclina- 
tion to work, is sure of shelter, clothing and subsistence, at 
the least. 

In preceding chapters, we have noticed the profit resulting 
from industry and capital, embarked in agriculture or other 
branches of industry. In the present, we are to inquire, 
wherein consists the peculiar profit of land itself, independent 
of that accruing from the industry and capital, devoted to its 
cultivation; and to consider the profit of land in the abstract, 

* Malthus, in his Essay cm Population, book. i. c. 405., has given a de- 
tail of some of the revolting extremes, to which savage tribes have been re- 
duced, by the want of a regular supply of food. 



318 ON DISTRIBUTION. book ii. 

and whence it originates, without any inquiry as to who may 
be the cultivator, whether the proprietor himself, or a tenant 
under him. 

It is the declared opinion of many writers,* that the value of 
products is never more than the recompense of the human 
agency engaged in their production; consequently, that there 
is no residue, or surplus, that can be set apart as the peculiar 
profit of land, and constitute the rent paid for its use to the pro- 
prietor. The tenor of their argument is this: the proprietor of 
land lying waste or fallow, having also a capital to dispose of, 
may, at his pleasure, expend it, either in cultivation, or in 
some other way. If he reckons that the cultivation of his 
land will yield him as large a return as any other investment, 
he will give it the preference; and, indeed, it is found by ex- 
perience, that this mode of investment is preferred, even 
though somewhat less advantageous than others, as being at all 
events more safe. Well: and what do they infer from this? 

* JDesiutt de Tracy. Commentaire sur I'Esprit de Lois, c. 13. Ricardo, 
{a) Frin. of Pol. Econ. and Tax. c. 2. 



(tt) This chapter of Ricardo is perhaps the least satisfactory and intelli- 
gible of his whole work. It goes upon the principle detailed by Malthus, 
in his Essay on Rent; viz. that the ratio of rent is determined hy the dif- 
ference in the product of land of different qualities, the worst land in culti. 
vation yielding no rent at all. But there is a great deal of land yielding 
rent without any cultivation; and, in a country, where the whole of the land 
is appropriated, none is ever cultivated without paying some rent or other. 
The downs of Wiltshire yield a rent, without any labour, or capital, being 
expended upon them: so likewise the forests of Norway, this rent is the 
natural product of the soil; it is paid for the perception of that natural pro- 
duct, between which, and the desire for it, an artificial difficulty is interpos- 
ed by human appropriation. The whole rent is, therefore, referable not to 
the quality of the land only, but to the quality jointly with the appropria- 
tion; and so it is in all cases. Wherever a difficulty is thus interposed, rent 
will be paid upon all land brought into cultivation; for why should the pro- 
prietor part with the temporary possession for nothing, any more than the 
capitahst with his capital? And the ratio of rent is determined, not altoge- 
ther by the quality of the soil, but by the intensity — 1. of the desire, or 
demand for its productive agency; 2. of the artificial difficulty interposed 
by nature and human appropriation. The quality of the soil may vary the 
intensity of the demand for it beyond all question; for the quality is the pro- 
ductive agency: but the supply of agricultural industry and capital in the 
market will also vary the proportion of its product, which industry and capi- 
tal will expect for themselves. Why is rent highest, when a population is 
condensed on a limited territorial surface? because then the utility of its pro- 
ductive quahties is more strongly felt and desired, in consequence of the 
intense difficulty of their attainment. And why is rent still further raised 
by the prohibition of the import of products of external agriculture? Be- 
cause the natural difficulty of obtaining the benefit of the productive agen- 
cy of foreign land is aggravated, by the artificial difficulty interposed by 
legislative enactments. The degree of productive agency, of course affects 
the amount of the product; but rent originates in the union of that agency, 
or utility, with difficulty of attainment, natural and artificial, and is regulat- 
ed in its ratio by their combined intensity. T. 



CHAP. IX. ON DISTRIBUTION. 319 

Why, that cultivation yields no return whatever, beyond the 
interest of the capital engaged in it;* and if so, what is there 
left for the profit of the productive powers of the soil? Evi- 
dently nothing whatever. I have endeavoured to put the ar- 
gument in the clearest and most intelligible light; and I have 
to observe upon it, that it proceeds upon a partial and imper- 
fect view of the matter, and upon a total neglect of the influ- 
ence of demand in the fixation of value. I will now adventure 
a complete view of the subject. 

The productive power of the soil has no value, unless where 
its products are objects of demand. Travellers, who have ex- 
plored the interior of America, and other desert parts of the 
globe, make repeated mention of tracts of the richest land, ca- 
pable of every kind of culture, yet wholly destitute of any use- 
ful or valuable products. But, no sooner is a colony establish- 
ed in the vicinity, or, by some means or other, a market found, 
where the products of the soil will, in the way of exchange, 
pay the usual rate of interest upon the requisite advances, than 
cultivation begins immediately. Up to this point, there is no 
difference between us. But, if any circumstances operate to 
aggravate the demand beyond this point, the value of agricul- 
tural products will exceed, and sometimes very greatly exceed, 
the ordinary rate of interest upon capital; and this excess it is, 
which constitutes the profit of land, and enables the actual cul- 
tivator, when not himself the proprietor, to pay a rent to the 
proprietor, after having first retained the full interest upon his 
own advances, and the full recompense of his own industry. 

Land is an agent gratuitously furnished to mankind at large, 
by whom it is afterwards exclusively appropriated; but its ap- 
propriation does not begin to be profitable to the individual, in 
whose favour it is made, until its products are an object of de- 
mand, and until their supply ceases to be co-extensive with 
the desire for them, as it is with respect to some other natural 
objects, air, water, &c. 

From those products of the soil only, thus raised in value by 
the demand, can there accrue that profit to the proprietor, 
which has been called the profit of land; and which is paid in 
all civilized countries, and especially where manufacture and 
commerce multiply the objects of exchange. It may sometimes 
happen, that, in a particular district of such a country, the rent 
of land may be very trifling; as in our own district of Sologne, 
where it is no more than 1 fr. the arpent; but this is owing to 
the want of roads, and particularly of water-carriage, which 
makes the charge of bringing its agricultural produce to mar- 
ket, added to the charge of cultivation, absorb nearly the whole 
value it will there sell for. 

In some countries, highly civilized and productive in the 

* According to these writers, even the interest of capital is not given 
as the recompense of its concurrence in the business of production. I have 
already exposed the fallacy of this opinion, supra, Chap. 8, sect. 2. 



320 ON DISTRIBUTION. book ii. 

extreme, land pays no more than 3 or 4 per cent, upon its 
price or purchase-money. Yet, this is no proof of the poverty 
of the soil; it proves only, that it sells dear. A landed estate 
may yield \20 fr. the arpent, and require very little expense 
of cultivation; as if it be laid down in pasture, for instance; in 
such case, it must owe most of its value to its natural proper- 
ties; yet, if it have cost the proprietor 4000 fr. the arpent, it 
will yield a return of 3 per cent. only. And herein consists 
the difference between the profit and the rent of land: profit is 
high or low, according to the quantum of the product; rent, 
according to the quantum of the purchase-money or price. — 
An acre of land, yielding a profit of ifr. only, will bring as 
high a rent as an acre yielding a profit of SO/r., if 50 times as 
much has been paid for the one as for the other. 

Whenever land is bought with capital, or capital with land, 
occasion is given for a comparison of the returns of the one 
species of property with the returns of the other. It is possi- 
ble, that an estate, bought with a capital of i.00,000 fr., may 
produce but 3 or 4000 /r. per annum, whilst the same amount 
of capital would yield 5 or 6000 /r. The lower rate of inte- 
rest, which the proprietor is content to take on a purchase of 
land, may be attributed, in the first place, to the superior sta- 
bility of the investment. Capital can seldom be made pro- 
ductive, without undergoing several changes both of form and 
of place, the risk of which is always more or less alarming to 
persons unaccustomed to the operations of industry; whereas, 
on the contrary, landed property.produces without any change 
of either quality or position. The satisfaction and pleasure 
attached to territorial possession, the consideration, weight, 
and dignity it communicates, and the titles and privileges with 
which it is in some countries accompanied, contribute greatly 
to increase this natural preference. 

It is true, that land is more exposed than other property to 
the burden of public taxation, and to the arbitrary exactions 
of power, precisely because it can neither be removed nor 
concealed. A floating capital may take any shape whatever, 
and be removed at will. It can escape tyranny and civil com- 
motions more readily, than even the person of its proprietor. 
It is a safer object of property; for it is often impossible to at- 
tach it, or to make it specifically responsible for the debts of 
the proprietor. Moreover, it is much less exposed to litiga- 
tion, than landed property. Yet, it is clear, that all these ad- 
vantages are more than counterpoised by the superior risk of 
investment; and, that landed property is still preferred to 
floating capital; since land is dearer, in proportion to its an- 
nual returns. 

Whatever may be the exchangeable price of land and capi- 
tal one to the other, it is proper to observe, that their inter- 
change makes no variation in the supply of productive agen- 
cy of land and capital respectively in circulation, and disposa- 
ble for the purposes of production; consequently, that exchange- 



CHAP. IX. ON DISTRIBUTION. 321 

able price can nowise affect the real and positive profit of 
land and of capital. When Richard sells his estate to Thomas, 
the productive service of the land is at the disposal of Thomas 
instead of Richard; and that of the capital, given in ex- 
change for it, is at the disposal of Richard instead of Thomas. 

The only thing, which really varies the amount of produc- 
tive agency of land in circulation, is the actual amelioration 
of the soil, by clearing and bringing new land into cultivation, 
or enlarging the productive powers of old land, and thus in- 
creasing its product. Savings and accumulations of capital 
are, in the shape of agricultural improvements, transformed 
into landed property, and made to participate in all the pecu- 
liar advantages and disadvantages attached to it. The same 
may be said of houses, and generally of all capital invested in 
a fixed and permanent object; it thenceforth loses the charac- 
ter of capital, and assumes that of landed property. 

Whence we may draw this invariable maxim ; that the pro- 
ductive agency of land is possessed of value, which value, 
like value in general, increases in the direct ratio of the de- 
mand, and the inverse ratio of the supply; and that, since 
land differs as much in quality, as in site and position, there 
is a peculiar demand and supply for each peculiar quality. 
A demand for so much wine, more or less, whatever it arise 
from, creates a specific demand for as much productive agen- 
cy of the soil, as may be requisite for its growth;* and the 
extent of surface, adapted to the culture of the grape, deter- 
mines the supply of that productive service. If the soil, ca- 
pable of growing good wine, be very limited in extent, and 
the demand for such wine very brisk, the profit of the soil 
itself will be extravagantly high. 

It is worthy of remark, that all land, that yields any profit 
at all, however trifling in amount, even so little as 1 fr. the 
arpent, or even less, may be kept in a state of cultivation: and 
there have been many instances of its cultivation under such 
circumstances. Herein it differs from capital and industry. 
A labourer, if he finds himself settled in a place, where his 
labour does not yield him what he has reason to expect, can 
migrate to another. So, likewise, capital quickly flows from 
a channel, that affords a less, to one that affords a greater re- 
turn. But land has not the same facilities: it is of necessity 
immoveable; consequently, out of its gross product, after the 
deduction in the first instance of all advances of capital, with 
interest, as well as of the profits of industry, without which 
there could be no product whatever, there still remains to be 
deducted the expense of carrying the product to the market, 
or place of exchange. When these several deductions absorb 
the whole product of the land, the land itself yields no profit 
at all, and the proprietor can never succeed in getting a rent 

*As well as a demand for the capital and industry requisite for the cul- 
tivation. 

48 



322 ON DISTRIBUTION. book n. 

from it. Even if he cultivate himself, he can only gain a 
profit on his capital and industry, but will receive none what- 
ever from the bare ownership of the land. In Scotland, there 
are tracts of unproductive land thus cultivated by the propri- 
etors, which it would not answer for any one else to under- 
take. So, likewise, in the back settlements of the United 
States, there are tracts of great extent and fertility, whose re- 
venue alone would not maintain the proprietors; yet they are, 
nevertheless, cultivated with success; but it is by the proprie- 
tors themselves, who consume the product at the place of 
growth, and are obliged to superadd to the profit of the land, 
which is little or nothing, the further profit of capital and per- 
sonal industry, which afford a handsome competency. 

It is obvious, that land, though in a state of cultivation, 
yields no profit, when no farmer will pay rent for it, which 
is a convincing proof, that it gives no surplus, after allowing 
for the profit of the capital and industry requisite for its cul- 
tivation. 

In the instance just mentioned, the effect is occasioned by 
the distance of the market; the expense of transport swallows 
up the profit, which might otherwise be made of the land. 
Other instances might be adduced, in which badness of sea- 
sons, war, or taxation, have produced the same effect, and par- 
tially or totally absorbed the profit of land, and thus thrown 
it out of cultivation.* 



SECTION II. 



Of Rent. 

When a farmer takes a lease of land, he pays to the pro- 
prietor the profit accruing from its productive agency, and 
reserves to himself, besides the wages of his own industry, 
the profit upon the capital he embarks in the concern; which 
capital consists in implements of husbandry, carts, cattle, &c. 
He is an adventurer in the business of agricultural industry; 
and, amongst the means he has to work with, there is one that 
does not belong to him, and for which he pays rent, i. e. the 
land. 

The preceding section was occupied in explaining the source 

• This catalogue of adverse circumstances, all bearing- more strongly 
upon the profit of land, than upon that of other sources of revenue, ex- 
plains the frequent and unavoidable remission of rent to the farmer, and 
proves the accuracy of M. de Sevigne's judgment, when she writes from 
the country: — "I wish my son could come here and convince himself of 
the fallacy of fancying oneself possessed of wealth, when one is only pos- 
sessed of land. " Lettre 224. 



CHAP. IX, ON DISTRIBUTION. 323 

of the profit of land. Its rent is generally fixed at the highest 
rate of that profit, and for the following:; reason. 

Agricultural adventure requires, on the average, a smaller 
capital {a), in proportion, than other classes of industry, 
reckoning the land itself as no part of the capital of the ad- 
venturer. Wherefore, there is a greater number of persons 
able, from their pecuniary circumstances, to embark in agri- 
cultural, than in any other speculations; consequently, a 
greater competition of bidders for land upon lease. On the 
other hand, the quantity of land fit for cultivation is limited 
in all countries; whereas, the quantity of capital and the num- 
ber of cultivators have no assignable limitation. Landed pro- 
prietors, therefore, at least in those countries which have 
been long peopled and cultivated, are enabled to enforce a 
kind of monopoly against the farmers. The demand for their 
commodity, land, may go on continually increasing; but the 
quantity of it can never be extended. 

This circumstance is equally applicable to the nation at 
large, and to each particular province or district. The num- 
ber of acres to be rented in each province is incapable of ex- 
tension; whilst the number of persons in a condition to rent 
them has no fixed and absolute limit. 

Whenever this is the case, the bargain between the land- 
holder and the tenant must always be greatly in favour of the 
former; and, whenever there is any portion of the soil, which 
yields to the latter more than the interest of his capital and 
the wages of his industry, a higher bidder will soon offer him- 
self. The liberality of a few proprietors, the distance at which 
they happen to reside, the ignorance of others, and even of 
the farmers themselves, and the imprudence of a few more, 
may sometimes operate to depress the ratio of rent below the 
maximum of profit; but these are accidental circumstances, 
which act for a season only, and can never prevent the regu- 
lar and constant action of natural causes, which must in the 
end prevail. 

Besides this advantage accruing to the land-holder, derived 
from the very nature of things, he has likewise in general the 
advantage of possessing, or being able to accumulate greater 
wealth, and sometimes credit, patronage, and influence, into 
the bargain: but the first advantage is alone sufficient to insure 
him the sole benefit of anj' circumstances, that may happen to 
enhance the profit of land. The opening of a canal or road, 
the increase of population, wealth, and affluence in the pro- 
vince, always operate to raise his rent. He also benefits by 
every improvement in the cultivation: for a man can afford to 



(a) This is not universally true. In Eng-lancl, wliere af^-riculture has at- 
tained a iiig-h desj'ree of perfections arable farms require much larg-er capi- 
tals than formerly; and a farmer is commonly a mucli riclier man, than the 
majority of the tradesmen in his neighbourhood. T« 



324 ON DISTRIBUTION. book ii. 

pay dearer for the hire of an instrument, when he knows how 
to turn it to better account. 

When the proprietor himself expends a capital in the im- 
provement of his land, in draining, irrigation, fences, buildings, 
houses, or other erections, the rent then includes, in addition 
to the profit of the land, the interest likewise of the capital so 
expended.* 

The farmer may sometimes undertake these expenses of 
amelioration himself; but he can only calculate on receiving 
interest on the outlay during the continuance of his lease: at 
the expiration of which, the oenefit must devolve to the land- 
holder, being wholly incapable of removal: thenceforward the 
landlord derives the whole profit, without having made any 
of the advances: for he receives a proportionate increase of 
rent in consequence. The farmer should, therefore, engage 
only in those improvements, whose effects will last no longer 
than his lease; unless the lease be long enough, to allow the 

f)rofit arising from his improvements to repay the whole out- 
ay, together wuth the interest. It is in this way, that long 
leases operate to increase the product of the land; and it is 
evident the effect will be the greatest, when the land is farm- 
ed by the proprietor himself; for he is far less likely, than the 
farmer, to lose the benefit of such advances; every judicious 
improvement yields him a permanent profit, and the original 
outlay is amply repaid, when the land is finally disposed of. 
The farmer's certainty of reaping the advantage till the end 
of his lease is equally conducive to the improvement of land- 
ed property with the length of leases. On the contrary, such 
laws and customs, as authorize the cancelling of leases in spe- 
cified cases, as in case of sale by the proprietor, are high- 
ly prejudicial to agriculture; since the farmer will hardly 
venture to undertake any considerable improvement, if kept 
in continual fear of seeing an intrusive successor appropriate 
the recompense of his ingenuit)'", labour, and capital. In fact, 
every improvement he should make would but increase the 
risk of that injustice; for land is far more saleable in good con- 
dition than otherwise. 

Leases are no where more sacredly regarded than in En- 
gland; and the privilege, enjoyed by lessees to the amount of 
40s. (about 50 Jr.) and upwards, of voting at Parliamentary («) 
elections, has, in some measure, restored the equipoise of pow- 

• The capital, vested in improvements upon land, is sometimes of great- 
er value than the land itself. This is the case with dwelling-houses. 



(a) It is singular, that our author should have persevered in this mistake; 
especially as the work of his countryman, Cottu, gave him the opportunity 
of correcting it in the fourth edition. The right of voting is confined ex- 
clusively to the proprietor, and is not extended even to all classes of pro- 
perty: freehold alone confers the right, and not copyhold or leasehold of 
any kind. T. 



CHAP. X. ON DISTRIBUTION. 325 

er and influence between landlords and tenants, which seldom 
exist in practice. In no other country do we see tenants so 
confident of undisturbed possession, as to build upon ground 
held on lease. Such tenants improve the land, as if it were 
their own; and their landlords are punctually paid; which is 
less frequently the case elsewhere. 

The land is sometimes cultivated by persons possessed of 
no capital whatever, the proprietor furnisliing himself the re- 
quisite capital, as well as the land. They are called in France 
metayers, and commonly pay to the landlord half the gross 
product. This arrangement is to be met with only in the in- 
fancy of agriculture, and is of all others the least conducive to 
improvement; for the party, who bears the expense of ame- 
lioration, whether landlord or tenant, makes the other a gra- 
tuitous present of half the interest on his advances. This kind 
of tendency was more common in the feudal times, than it is 
at present. The lords were above tilling the land themselves, 
and their vassals had not the means. The largest incomes were 
then derived from land, because the lords were large proprie- 
tors; but they bore no proportion to the extent of the land. 
Nor was this owing to the defect of agricultural skill, so much 
as to the scarcity of capital devoted to improvements. The 
lord felt little anxiety to improve his property, and expended, 
in a way more liberal than productive, an income that he 
might easily have tripled. He levied war, gave feasts and 
tournaments, and maintained a numerous retinue. If we look 
at the then degraded condition of commerce and manufacture, 
superadded to the insecurity of the agricultural interest, we 
need go no further for the explanation of the reason, why the 
bulk of the community was in the extreme of indigence; and 
why, independently of every political cause, the nation itself 
was weak and impotent. Five departments would not be able 
to repel attacks, which overwhelmed all France at that peri- 
od: but, happily for her, the other states of Europe were no- 
wise in a better condition. 



CHAPTER X. 



OF THE EFFECT OF REVENUE DERIVED BY ONE NATION FROM 
ANOTHER. 

One nation can not take from another the revenues of its 
industry. A German tailor, establishing himself in France, 
there makes a profit, in which Gemany has no participation. 
But, if this tailor contrive to amass a little capital, and after 



326 ON DISTRIBUTION. book ii. 

the lapse of several years carry it back with him to his native 
country, he injures France to the same extent as a French 
capitalist, who should emigrate with the same amount of for- 
tune. * In a political view, the injury to the wealth of the 
nation is equal in both cases; but, in a moral light, it is other- 
wise: for I reckon that a native Frenchman, in quitting his 
country, robs it of an aflectionate attachment, and a spirit of 
exclusive nationality which it can never look for in a stran- 
ger born. 

A nation, receiving a stray child into its bosom again, ac- 
quires a real treasure; inasmuch, as in him it receives an ad- 
dition to its population, an accession to the profits of national 
industry, and an acquisition of capital. It at the same time 
recovers a lost citizen, and the means for him to subsist upon. 
If the exile bring back his industry only, at any rate the pro- 
fits of industry are added to the national stock. It is true, 
that a source of consumption is likewise superadded; but sup- 
posing it to counterbalance the advantage, there is no diminu- 
tion of revenue, while the moral and political strength of the 
country is actually augmented. («) 

With regard to capital lent by one nation to anotherj the 
effect upon their respective wealth is precisely analogous to 
that, resulting upon every loan from one individual to ano- 
ther. If France borrow capital from Holland, and devote it 
to a productive purpose, she will gain the profit of industry 
and land accruing from the employment of that capital; and 
she will do so even although she pay interest; in like manner 
as a merchant or manufacturer borrows for the purposes of his 
concern, and gains a residue of profit, even after paying the 
interest of the loan. 

But, if one state borrow from another, not for productive 
purposes, but for those of mere expenditure, the capital bor- 
rowed will then yield no return, and the national revenue be 
saddled with the interest to the foreign creditor. Such was 
the condition of France, when she borrowed from the Genoese, 
the Dutch, and the Genevese, for the support of her wars, or 

* If, however, this capital be the fruit of Lis personal frugality, he robs 
France of no part of her wealth existing previous to his arrival. Had he 
continued resident there, the aggregate of the capital of France would have 
been increased to the full extent of his accumulation; but, in taking the 
viiiole away with him he takes no more than his own earnings, and no value 
but what is of his own creation; in so doing, he commits no individual, and, 
therefore, no national, wrong-. 



(fi) In tlie common course of things, such an addition is a national bene- 
fit, because it is an accession to the secondary source of production, i. e. 
industry. But defective human institutions may convert a benefit into a 
curse; as where a poor-law system gives gratuitous subsistence to a part of 
the population, capable of labour, but not~-incited by want. In such case, 
every additional human being may be a burthen instead of a prize; for he 
may be one more on the list of idle pensioners. T. 



CHAP. X. ON DISTRIBUTION. 327 

to feed the prodigality of a court. Yet it was better to bor- 
row from strangers than from natives, even for the purpose of 
dissipation; because the amount so borrowed, was not with- 
drawn from the national productive capital of France. In either 
case, the French people would have to pay the interest;* but 
had they likewise lent the capital, they would have had to pay 
the interest, and at the same time have lost the benefit, which 
their industry and land might have derived from its employ- 
ment and agency. 

With regard to such landed property, as may belong to fo- 
reigners residing abroad, the revenue arising from it is an 
item of foreign, and forms no part of the national revenue. 
But it is to be remembered, that the foreigner can not have 
purchased it without a remittance of capital equal in value to 
the land; which capital is an equally valuable acquisition, par- 
ticularly if the nation be possessed of improveable land in 
abundance, but of little capital to set industry in motion. In 
making his purchase of land, the foreigner exchanges a reve- 
nue of capital, which he leaves the nation to profit by, for a 
revenue of land: which he thenceforth receives; thus bartering 
interest of money for rent of land. If the national industry 
be active and skilfully directed, more benefit may be derived 
from the interest, than was before obtained from the rent; the 
purchaser, however, acquires a fixed and permanent property, 
in lieu of one more perishable, transferable, and destructible. 
Mismanagement may soon annihilate the capital the nation 
has acquired; but the land remains a permanent possession of 
the purchaser, and he may sell it and get back the value when 
he pleases. There is therefore nothing to be apprehended from 
the purchase of land by foreigners, provided there be wis- 
dom enough, to employ in reproduction the value received 
in exchange. 

The particular form, in which one nation may draw revenue 
from another, is of no importance whatever. It may be re- 
mitted in specie, in bullion, or in any other kind of merchan- 
dise: indeed it is of the greatest consequence to leave indi- 
viduals to take it in the shape, that best suits their conveni- 
ence; for what suits them will infallibly be the best for both 
nations; in like manner as in the conduct of international trade, 
the commodity, which individuals exporter import in prefer- 
ence, is that which best suits the mutual national interests. 

Tiie agents of the English East India Company draw from 
that country, either an annual revenue, or an accumulated for- 
tune, which they return to England to enjoy and live upon: 
they take good care not to withdraw these remittances in the 
shape of gold or silver, because the precious metals are of more 
relative value in Asia than in Europe; they remit in the shape 
of India goods and products, on which a fresh profit is made 

*It will be shown in Book III., that the interest is equally lost, whether 
spent internally or externally. 



338 ON DISTRIBUTION. book ii. 

on arrival in Europe: every million they remit, swells perhaps 
to as much as 1,200,000, by the time it has reached the place 
of destination. Thus, Europe gains to theamount of 1,200,000, 
while India loses only a million. If these despoilers ofln- 
dia*(a) insisted on trasmitting this whole sum in specie, they 
must rob Hindustan, perhaps, of 1,500,000, or upwards for 
every 1,200,000, that England would receive. The sum may, 
perhaps, be amassed originally in specie; but it is always re- 
mitted in the shape of that commodity, which, for the time 
being, answers best as an object of transport. As long as expor- 
tation of any kind is allowed, and exportation has always been 
regarded by statesmen with a favourable eye, it is easy to 
receive in our country, the revenue and capital derived from 
another. And the remittance can not be prevented by the 
government, without the interdiction of all external commerce, 
which after all would leave the resource of smuggling and con- 
traband. In the eyes of political economy, nothing is more 
absurd, than to see governments prohibit the export of the na- 
tional specie, as a means of checking the emigration of wealth.t 

* Eaynal tells us, that, inasmuch as the East India Company derives a 
revenue from Bengal, to be consumed in Europe, it must infalliby drain it 
of specie in the end, since the Company is the only merchant, and imports 
no specie itself. But Raynal is mistaken in this. In the first place, pri- 
vate merchants do carry the precious metals to India, because they are of 
more value there than in Europe; and that very reason also deters the ser- 
vants of the company, who may have made fortunes in Asia, from remitting 
them in specie. 

And if it were to be suggested, that a fortune, remitted to Europe, is less 
substantial and more speedily dissipated, when it arrives in the shape of 
goods, than when in that of specie, this again would be an error. The form, 
that property happens to assume, does not affect its substantiality; when 
once transferred to Europe, it may be converted into specie, or land, or what 
not. It is the amount of values, and not the temporary form they appear 
under, which, in this colonial connexion, as in that of international trade, is 
the essential circumstance. 

f The complete interception of all export of objects of value would not 
help them towards the point of intent; because free communication occa- 
sions a much greater influx than efflux of wealth. Value, or wealth, is by 
nature fugitive and independent. Incapable of all restraint, it is sure to van- 
ish from the fetters that are contrived to confine it, and to expand and flou- 
rish under the influence of liberty. 



(a) This is a harsh word, yet probably justified by the history of the ori- 
ginal acquisition. But the scene has now changed; the servants of the 
sovereign company no longer look to spohation as a pubhc or private re- 
source, but are content with the liberal remuneration of laborious duties, 
civil, military, and financial. A shght examination of the connexion between 
Britain and her Asiatic dependencies will show, how small a|balance is re- 
mitted to the former in any shape; and it should be remembered that part, 
even of this, is but the interest of loans raised in England, for the purposes 
of Indian administration, though not always of a wise or paternal charac- 
ter. T. 



CHAP. XI. ON DISTRIBUTION. 329 



CFIAPTER XI. 



OF THE MODE IN WHICH THE QUANTITY OF THE PRODUCT AF- 
FECTS POPULATION. 



SECTION 



Of Population, as connected with Political Economy. {I) 

Having, in Book I, investigated the production of the ar- 
ticles necessary to the satisfaction of human wants, and in the 
present Book, traced their distribution among the different 
members of the community, let us now further extend our 
observations to the influence those products exercise upon the 
number of individuals, of which the community is composed; 
that is to say, upon population. 

In her treatment of all organic bodies, nature seems to de- 
spise the individual, and afford protection only to the species. 
Natural history presents very curious examples of her extra- 
ordinary care to perpetuate the species; but the most power- 
ful means she adopts for that purpose is, the multiplication of 
germs in such vast profusion, that, notwithstanding the im- 
mense variety of accidents occurring to prevent their early de- 
velopment or destroy them in progress to maturity, there are 
always left more than sufficient to perpetuate the species. Did 
not accident, destruction, or failure of the means of develop- 
ment check the multiplication of organic existence, there is no 
animal or plant that might not cover the face of the globe in a 
very few years. 

This faculty of infinite increase is common to man, with all 
other organic bodies; and although his superior intelligence 
continually enlarges his own means of existence, he must soon- 
er or later arrive at the ultimum. 

Animal existence depends on the gratification of one sole 
and immediate want, that of food and sustenance; but man is 
enabled, by the faculty of communication with his species, to 
barter one product for another, and to regard the value, rather 
than the nature, of a product. The producer and owner of a 
piece of furniture of XQOfr. value may consider himself as pos- 
sessing as much human food, as may be procurable for that 

(1) [fn the original the title of this section is made the title of the chapter, 
and the title of the chapter the title of the section.] Ambhican Editor. 

49 



330 ON DISTRIBUTION. book ii. 

price. And, with respect to the relative price of products, it 
is in all cases determined by the intensity of the desire, the 
deg;ree of utility in each product for the time being. We may 
safely take it for granted, that mankind in general will not 
barter an object of more, for one of less urgent necessity. In 
a season of agricultural scarcity, a larger quantity of furniture 
will be given for a smaller quantity of human aliment; but it 
is invariably true, that whenever barter takes place, the object 
given on one side is worth that given on the other, and that 
the one is procurable for the other.* 

Trade and barter, as we have seen above, adapt the products 
to the general nature of the demand. The objects, whether 
of food, of raiment, or of habitation, for which , the strongest 
desire is felt, are of course the most in request; and the wants 
of each family or individual, are more or less fully satisfied, 
in proportion to the ability to purchase these objects; which 
ability depends upon the productive means and exertion of 
each respectively; in plain terms, upon the revenue of each 
resnectively. Thus, in the end, if we sift this matter to the 
bottom, we shall find, that families, and nations, which are but 
aggregations of families, subsist wholly on their own products; 
and that the amount of product in each case necessarily limits 
the numbers of those who can subsist upon it. 

Such animals as are incapable of providing for future exi- 
gencies, after they are engendered, if they do not fall a prey 
to man, or some of their" fellow brutes, perish the moment 
they experience an imperative want, which they have not the 
means of gratifying. But man has so many future wants to 
provide for, that he could not answer the end of his creation, 
without a certain degree of providence and forethought: and 
this provident turn can alone preserve the human species from 
part of the evils it would necessarily endure, if its numbers 
were to be perpetually reduced by the process of destructive 
violence, t 

• Although all products are necessary to the social existence of man, the 
necessity of food being of all others most urgent and unceasing, and of most 
frequent recurrence, objects of aliment are justly placed first in the cata- 
logue of the means of human existence. They are not all, however, the 
produce of the national territorial surface; but are procurable by commerce 
as well as by internal agriculture; and many countries contain a greater 
number of inhabitants, than could subsist upon the produce of their land. 
Na)', the importation of another commodity may be equivalent to an im- 
portation of an article of food. The export of wines and brandies to the 
north of Europe is almost equivalent to an export of bread; for wine and 
brandy, in great measure, supply the place of beer and spirits distilled from 
grain, and thus allow the grain," which would otherwise be employed in the 
preparation of beer or spirits, to be reserved for that of bread. 

■{•The practice of infanticide in China proves, that the local prejudices 
of custom and of religioji there counteract the foresight which tends to 
check the increase of population: and one can not but deplore such pre- 
judices; for the human misery resulting from the destruction is great, in 
proportion as its object is more fully developed, and more capable of sen- 



CHAP, XI. ON DISTRIBUTION. 331 

Yet, notwithstanding the forethought ascribed to man, and 
the restraints imposed on him by reason, legislation, and social 
habits, the increase of population is always evidently co-ex- 
tensive, and even something more than co-extensive, with the 
means of subsistence. It is a melancholy but an undoubted 
fact, that, even in the most thriving countries, part of the 
population annually dies of mere want. Not that all who 
perish from want absolutely die of hunger; though this calami- 
ty is of more frequent occurrence than is generally supposed.* 
I mean only that they have not at command all the necessa- 
ries of life, and die for want of some part of those articles of 
necessity. A sick or disabled person may, perhaps, require 
nothing more than a little rest, or medical advice, together 
with, perhaps, some simple remedy to set him up again; but 
the requisite rest, or advice, or remedy, are denied, or not af- 
forded. A child may require the attentions of the mother, 
but the mother perhaps may be taken away to labour, by the 
imperious calls of necessity; and the child perish, through ac- 
cident, neglect, or disease. It is a fact well-established by 
the researches of all who have turned their attention to statis- 
tics, that, out of an equal number of children of wealthy and 

sation. For this reason it would be still more barbarous and irrational policy 
to multiply wars, and other means of human destruction, in order to in- 
crease the enjoyments of the survivors; because the destructive scourge 
would affect human beings in a state more perfect, more susceplible of 
feeling and suffering, and arrived at a period of life, when tlie mature dis- 
play of his faculties renders man more valuable to himself and to others. 

* The Hospice de Bicetre, near Paris, contains, on the average, five or six 
thousand poor. In the scarcity of the year 1795, the governors could not 
afford them food, either so good or so abundant as usual; and I am assured 
by the house-steward of the establishment, that at that period almost all the 
inmates died. 

It would appear from the returns given in a tract entitled " Observations 
on the Condition of the Labouring Classes" by J. Barton, that the average 
of deaths, in seven distinct manufacturing districts of England, has been 
proportionate to the dearness, or, in other words, the scarcity of subsistence. 
I subjoin an extract from his statements: 

Years. 

1801 - ■ 

1804 - • 

1807 - • 

1810 - ■ 

From the same returns it appears, that the scarcity occasioned less mor- 
tality in the agricultural districts. The reason is manifest: the labourer is 
there more commonly paid in kind, and the high sale-price of the product 
enabled the farmer to give a high purchase-price for labour, (a) 



(a) The latter reason is not very satisfactory: for the total receipts of the 
corn-growers are probably not larger in years of scarcity, than in those of 
abundance. T, 



■Average price of 

wheat per qr. 

s. d. 


Deaths 


-118 3 - , • 

- 60 1 - - . 

- 73 3 - - . 

-106 2 - - - 


■ - 55,965 
- - 44,794 

■ - 48,108 

■ - 54,864 



332 ON DISTRIBUTION. book n. 

of indigent parents, at least twice as many of the latter die, in 
infancy as of the former. In short, scanty or unwholesome 
diet, the insufficient change of linen, the want of warm and 
dry clothing, or of fuel, ruin the health, undermine the con- 
stitution, and sooner or later bring multitudes of human be- 
ings to an untimely end; and all, that perish in consequence 
of a want beyond their means to supply, may be said to die 
of want. 

Thus, to man, particularly in a forward state of civilization, 
a variety of products, some of them in the class of what have 
been denominated immaterial products, are necessaries of ex- 
istence; these are multiplied in a degree proportionate to the 
desire for them, respectively, because its intensity causes a 
proportionate elevation of their price: and it may be laid down 
as a general maxim, that the population of a state is always 
proportionate to the sum of its production in every kind.* 
This is a truth acknowledged by most writers on political 
economy, however various and discordant their opinions on 
most other points, t 

It appears to me, however, that one very natural conse- 
quence, deducible from this maxim, has escaped their obser- 

• Not but that accidental causes may sometimes qualify these general 
rules. A country, where property is very unequally distributed, and where 
a few individuals consume produce enough for the maintenance of num- 
bers, will doubtless subsist a smaller population, than a country of equal 
production, where wealth is more equally diffused. The very opulent are 
notoriously averse to the burthen of a family; and the very indigent are 
unable to rear one. 

f Vide Stewart, On Political Economy, book i. c. 4. Quesnay, Encyclo- 
pedie, art. Grains. Mmitesquieu, Esprit des Loix.Yw. 18. c. 10. andliv. 23. 
c. 10 Buffon, ed. de Ber^iard, torn iv. p. 266. Forbonnais, Frincipes et 
Observations, p. 39. 45, Hume, Essays, part 2. Ess. 2. (Euvres de Foivre, p. 
145, 146. Condillac, Le Commerce et le Gouvernement, part 1. c. 24, 25, 
Verri, Fejlexions sur I'Economie Folitique, c. 210. Mirabeau, Ami des 
Hommes, torn. i. p. 40. Raynal, Histoire de V Establissementy liv. 11. s. 23. 
Chastellux, Be la FeUcite Fublique, torn. ii. p. 205. Necker, Administra- 
tion, des Finances de France, c. 9. and Notes sur I'Eloge de Colbert. Con- 
dorcet. Notes sur Voltaire, ed. de Kepi. torn. xlv. p. 60. Smith, Wealth of 
Nations, book 1. c. 8. 11. Gamier, Abr^gd Elemenfaire, part. 1. c. 3. and 
Preface de sa Traduction de Smith. Canard, Frincipes d'Economie Poli- 
tique, p. 133. Godwin, (a) On Political Justice, book viii. c. 3. Claviere, 
Be la France et des Fiats tfnis. ed. 2. p. 60. 315. Brown-Duignan,- Essay 
on the Principles of National Economy, p. 97. Lond. 1776. Beccaria, Ele- 
menti di Economia Publica, par. prim. c. 2. 3. Gorani, P^cherches sur la 
Science du Gouvernement, torn. ii. c. 7. Sismondi, Nouv. Prin. d'Econ, 
Pol. liv. vii. c. 1. et seq. Vide also, more especially, Mahhus, Essay on 
Population, a work of considerable research; the sound and powerful argu- 
ments of which would put tliis matter beyond all dispute, if it indeed had 
been doubted. 



(a) This writer has lately adventured a refutation of the work of Mal- 
thas; but his arguments, though urged with sufficient ingenuity and con- 
fidence, have made but few converts to his opinions. T. 



CHAP. XI. ON DISTRIBUTION. 333 

vation; which is, that nothing can permanently increase popu- 
lation, except the encouragement and advance of production; 
and that nothing can occasion its permanent diminution, but 
such circumstances as attack production in its sources. 

The Romans were for ever making regulations to repair the 
loss of population, occasioned by their state of perpetual ex- 
ternal warfare. («) Their censors preached up matrimony; 
their laws offered premiums and honours to plurality of chil- 
dren: but these measures were fruitless. There is no difficulty 
in getting children; the difficulty lies in maintaining them. 
They should have enlarged their internal production, instead 
of spreading devastation amongst their neighbours. All their 
boasted regulations did not prevent the effectual depopulation 
of Italy and Greece, even long before the inroads of the bar- 
barous northern hordes.* 

The edict of Louis XIV. in favour of marriage, awarding 
pensions to those parents, who should have ten, and larger 
ones to those, who should have twelve children, Avas attended 
with no better success. The premiums, that monarch held 
out in a thousand ways to indolence and uselessness, were 
much more adverse, than such poor encouragements could be 
conducive, to the increase of population. 

It is the fashion to assert, that the discovery of the New 
World has tended to depopulate Old Spain; whereas her de- 
population has resulted from the vicious institutions of her 
government, and the small amount of her internal product, in 
proportion to her territorial extent.t The most effectual en- 
couragement to population is, the activity of industry, and the 
consequent multiplication of the national products. It abounds 
in all industrious districts; and, when a virgin soil happens to 
co-operate with the exertions of a community, whence idle- 
ness is altogether discarded, its rapid increase is truly astonish- 
ing. In the United States of America, population has been 
doubling in the course of twenty years. 

For the same reasons, although temporary calamities may 
sweep off multitudes, yet, if they leave untainted the source's 
of reproduction, they are sure to prove more afflicting to hu- 
manity, than fatal to population. It soon trenches again upon 
the limit, assigned by the aggregate of annual production. 
Messance has given some very curious calculations, whereby 
it appears, that, after the ravages occasioned by the famous 

* Vide Livii Hist. lib. vi. Plutarchi Moralia, xxx. De defectu oraculo- 
rum. Strabonis, lib. vii. 

■j- Ustariz has remarked, that the most populous provinces of Spain are 
those, from which there has been the greatest emigration to America. 



(a) The examples of Eng-land, France, and the old states of the Ameri- 
can union, prove, that, neither war nor emigration can cause any perma- 
nent reduction of a national population. T. 



334 ON DISTRIBUTION. bookii, 

plague of Marseilles in 1720, marriages throughout Provence 
were more fruitful than before. The Abbe d'Expilly comes 
to the same conclusion. The same effect was observable in 
Prussia, after the plague of 1710. Although it had swept off 
a third of the population, the tables of Sussmilch* show the 
number of births, which, before the plague, amounted annually 
to about 26,000, to have advanced in the year following, 1711, 
to no less than 32,000. It might have been supposed, that 
the number of marriages, after so terrible a mortality, would 
have been at least considerably reduced; on the contrary, it 
actually doubled; a strong indication of the tendency of popu- 
lation to keep always on a level with the national resources. 

The loss of population is not the greatest calamity resulting 
from such temporary visitations; tlTe first and greatest is, the 
misery they occasion to the human race. Great multitudes 
can not be swept from the land of the living by pestilence, 
famine, or war, without the endurance of a vast deal of suffer- 
ing and agony, by numbers of sentient beings; besides the 
pain, distress, and misery of the survivors; the destitution of 
widows, orphans, brothers, sisters, and parents. It is a subject 
of additional regret, if, among the rest, there happen to fall one 
or two of those superior and enlightened men, whose single 
talents and virtues have more effect upon the happiness and 
wealth of nations, than the groveling industry of a million of 
ordinary mortals. 

Moreover, a great loss of human beings, arrived at maturi- 
ty, is certainly a loss of so much acquired wealth or capital; 
for every grown person is an accumulated capital, representing 
all the advances expended during a course of many years, in 
training and making him what he is. A bantling a day old 
by no means replaces a man of twenty; and the well-known 
expression of the Prince de Conde, on the victorious field of 
Senef, was equally absurd and unfeeling.t 

The destructive scourges of the human species, therefore, 
if not injurious to population, are at least an outrage on huma- 
nity; ori which account alone, their authors are highly crimi- 
' nal.J 

* Quoted by Malthas, in his Essay on Popul. vol. ii. 

•|- " Une nuit de Paris reparera tout cela." It requires the care and ex- 
penditure of twenty successive years to replace the full-grown man, that a 
cannon ball has destroyed in a moment. The destruction of the human 
race by war is far more extensive than is commonly imagined. The ravage 
of a cultivated district, the plunder of dwelling-houses, the demolition of 
establishments of industry, the consumption of capital, &c. &c. deprive 
numbers of the means of livelihood, and cause many more to perish, than 
are left on the field of battle. 

± Upon this principle, no capital improvement of the medicinal or chi- 
rurgical art, like that of vaccination for instance, can permanently influence 
national population; yet its influence upon the lot of humanity may be 
very considerable; for it may operate powerfully to preserve beings already 
far advanced in age, in strength, and in knowledge: whom to replace. 



CHAP. XI. ON DISTRIBUTION. 335 

But, though such temporary calamities are more afflicting 
to humanity, than hurtful to the population of nations, far 
other is the effect of a vicious government, acting upon a bad 
system of political economy. This latter attacks the very 
principle of population, by driving up the sources of produc- 
tion; and, since the numbers of mankind, as before seen, al- 
ways approach nearly to the utmost limits the annual revenue 
of the nation will admit of, if the government reduce that 
revenue by the pressure of intolerable taxation, forcing the 
subject to sacrifice part of his capital, and consequently di- 
minishing the aggregate means of subsistence and reproduction 
possessed" by the community, such a government not only 
imposes a preventive check on further procreation, but may 
be fairly said to commit downright murder; for nothing so 
effectually thins the effective ranks of mankind, as privation 
of the means of subsistence. 

The evil effects of monastic establishments upon population 
have been severely and justly inveighed against; but the 
mode, in which they operate, has been misunderstood; it is 
the idleness, not the celibacy, of the monastic orders, that 
ought to be censured. They put their lands into cultivation, 
it is true, but where is the merit of that? Would the lands 
remain untilled, if the monastic system were abolished? So 
far from that evil resulting from the abolition, wherever these 
establishments have been converted into manufactories, of 
which the French revolution has offered many examples, 
equal agricultural produce has continued to be raised, and the 
produce of the manufacturing industry has been all clear gain; 
while the increased total product, thus created, has been fol- 
lowed by an increase of population also. 

From these premises, may likewise be drawn this further 
conclusion; that the inhabitants of a country are not more 
scantily supplied with the necessaries of life, because their 
number is on the increase; nor more plentifully, because it is 
on the decline. Their relative condition depends on the rela- 
tive quantity of products they have at their disposal ; and it is 
easy to conceive these products to be considerable, though the 
population be dense; and scanty, though the population be 

would cost fresh births and fresh advances; in other words, abundance of 
sacrifices, privations, and sufferings, both to the parents and the cliildren. 
7hen population must be kept up by additional births, there is always 
.ore of the suffering' incident to the entrance and the exit of human ex- 
istence; for they are both of more frequent occurrence. Population may 
be kept up with half the number of births and deaths, if tlie average terra 
of life be advanced from forty to fifty years. There will, indeed, be a 
greater waste of the germs of existence; but the condition of mankind 
must be measured by the quantum of human suffering, whereof mere 
germs are not susceptible. The waste of them is so immense, in the ordi- 
nary course of nature, that the small addition can be of no consequence. 
Were the vegetable creation endowed with sensation, the best thing that 
could happen to it would be, that the seeds of all the vegetables, now- 
rooted up and destroyed, should be decomposed before the vegetable fa- 
culties were awakened. 



336 ON DISTRIBUTION. chap. xi. 

thinly spread. Famine was of more frequent occurrence in 
Europe during the middle ages, than it has been of late years, 
although Europe is evidently more thickly peopled at present. 
The product of England, during the reign of Queen Elizabeth, 
was not nearly so abundant as it is now, although her popula- 
tion was then less by half; and the population of Spain, re- 
duced to but eight millions, enjoys not nearly so much afflu- 
ence, as when it amounted to twenty-four.* 

Some writerst have considered a dense population as an in- 
dex of national prosperity; and, doubtless, it is a certain sign 
of enlarged national production. But general prosperity im- 
plies the general diffusion and abundance of all the necessa- 
ries, and some of the superfluities of life amongst all classes 
of the population. Some parts of India and of China are op- 
pressed with population and with misery also; but their con- 
dition would be nowise improved by thinning its numbers, at 
least if it were brought about by a diminution of the aggregate 
product. Instead of reducing the numbers of the population, 
it were far more desirable to augment the gross product; which 
may always be effected by superior individual activity, indus- 
try, and frugality, and the better administration, that is to say, 
the less frequent interference, of public authority. 

But, it will naturally be asked, if the population of a coun- 
try regularly keeps pace with its means of subsistence, what 
will become of it in years of scarcity and famine? 

Hear what Stewartf says on this subject: " There is a very 
great deception as to the difference between crops; a good 
year for one soil is a bad one for another." " It is far from 
being true," he continues, " that the same number of jDeople 
consume always the same quantity of food. In years of plen- 
ty, every one is well fed; — food is not so frugally managed; a 
quantity of animals are fatted for use; — and people drink more 
largely, because all is cheap. A year of scarcity comes; the 
people are ill fed; and, when the lower classes come to divide 
with their children, the portions are brought to be very 
small;" instead of saving, they consume their previous hoard; 
and, after all, it is unhappily too true, that part of that class 
must suffer and perish. 

This calamity is most common in countries overflowing 
with population, like Hindustan, or China, where there is 
little external or maritime commerce, and where the poorer 
classes have always been strictly limited to the mere neces- 

* If population depends on the amount of product, the number of bh-ths 
is a very imperfect criterion, by which to measure it. When industry and 
produce are increasing, births are multiphed disproportionately to the ex- 
isting population, so as to swell the estimate: on the contrary, in the de- 
clining state of national wealth, the actual population exceeds the average 
ratio to the births. 

f Wallace, Condorcet, Godwin. 

i Sir James, of Coltness, book i. c. 17. 



CHAP. XI. ON DISTRIBUTION. 337 

saries of life. There, the produce of ordinary years is barely 
sufficient to allow this miserable pittance; consequently, the 
slightest failure of the crop leaves multitudes wholly destitute 
of common necessaries, to rot and perish by wholesale. All 
accounts agree in representing, that families are, for this rea- 
son, very frequent and destructive in China and many parts 
of Hindu,stan. 

Commerce in general, and maritime commerce in particu- 
lar, facilitates the interchange of products, even with the most 
remote countries, and thus renders it practicable to import ar- 
ticles of subsistence, in return for several other kinds of pro- 
duce; but too great a dependence on this resource, leaves the 
nation at the mercy of every natural or political occurrence, 
which may happen to intercept or derange the intercourse 
with foreign countries. This intercourse must then be pre- 
served at all events, no matter whether by force or fraud; 
competition nmst be got rid of by every means, however un- 
justifiable; a separate province, or weali ally, perhaps, is ob- 
liged to purchase the national products, under restrictions 
equally galling, as the exaction of actual tribute; and a com- 
mercial monopoly enforced, even at the hazard of a war; all 
which evils make the state of the nation extremely precarious 
indeed. 

The produce of England, in articles of human subsistence, 
had undoubtedly increased largely towards the end of the 18th 
century; but its produce in articles of apparel and household 
furniture had probably increased still more rapidly. The 
consequence has been, that immensity of production, which 
enables her to multiply her population beyond what the pro- 
duce of her soil can support,* and to bear up under the pres- 
sure of public burthens, to which there is no parallel nor even 
approximation. But England has suffered severely, when- 
ever foreign markets have been shut against her produce; and 
she has sometimes been obliged to resort to violent means to 
preserve her external intercourse. She would act wisely, 
perhaps, in discontinuing those encouragements, that impel 
fresh capital into the channels of manufacture and external 
commerce, and directing it rather towards that of agricultural 
industry. It is probable, that, in that case, several districts, 
which have not yet received the utmost cultivation of which 
they are susceptible, particularly many parts of Scotland and 
Ireland, would raise agricultural produce enough to purchase 
most part, if not the whole, of the surplus product of her manu- 



* In a pamplilet entitled, Considerations on British Jgriculiure, pub- 
lished in 1814, by W. Jacob, a member of the Royal Society, and a well 
informed writer upon agricultural topics, we are told, (p, 34.), that Eng- 
land ceased to be an exporter, and became an importer, of wheat, about 
the year 1800. 

50 



338 ON DISTRIBUTION. book n. 

factures and commerce beyond her present consumption.* 
Great Britain would thereby create for herself a domestic con- 
sumption, which is always the surest and the most advantage- 
ous. Her neighbours, no longer offended by the necessari- 
ly jealous and exclusive nature of her policy, would probably 
lay aside their hostile feelings, and become willing customers. 
But, after all, if her manufactured, should still be dispropor- 
tioned to her agricultural produce, what is there to prevent 
her from adopting a system of judicious colonization, and 
thus creating for herself fresh markets for the produce of her 
domestic industry in every part of the globe, whence she 
might derive, in return, a supply of food for her superfluous 
population?! 

In this particular, the position of France appears to be pre- 
cisely opposite to that of Great Britain, It would seem, that 
her agricultural product is equal to the maintenance of a much 
larger manufacturing and commercial population. The face 
of the country presents the picture of high and general culti- 
vation; but the villages and country towns, are, for the most 
part, surprisingly small, poor, ill-built, and ill-paved, the few 
shops scantily supplied, and the public houses, neither neat 
nor comfortable. It is plain, the agricultural product must 
either be less than the appearance would indicate, or it must 
be consumed in a thriftless and unprofitable manner; proba- 
bly both these causes are in operation. 

In the first place, the production is far less than it might 
be; and this is chiefly owing to three causes: — 1. the want of 
capital, particularly in enclosures, live stock, and ameliora- 
tionsrj 2. the indolence of the cultivators, and the too general 
neglect of weeding, trimming the hedges, clearing the trees of 
moss, destroying insects, &c. &c. 3. the neglect of a proper 

• The writer last cited enters into long details to show, that the soil of 
the British Isles could be made to produce at least a tliird more than their 
present product, ibid. p. 115. et seq. 

•j- By judicious colonization I mean, colonization formed on the princi- 
ples of complete expatriation, of self-government without control of the 
mother country, and of freedom of external relations; but with the enjoy- 
ment of protection only by the mother country, while it should continue 
necessary. Whj^ should not political bodies imitate in this particular the 
relation of parent and child? When arrived at the age of maturity, the 
personal independence of the child is both just and natural; the relation it 
engenders is, moreover, the most lasting and most beneficial to both par- 
ties. Great part of Africa might be peopled with European Colonies form- 
ed on these principles. The world has yet room enough, and the cultivat- 
ed land on the face of the globe is far inferior in extent to the fertile land 
remaining untilled. The Earl of Selkirk has thrown much light on this 
matter in his tract on Emigration and the State of the Highlands. 

t The want of capital prevents the employment of machinery for expe- 
diting the operations, like the thrashing machine in common use in Eng- 
land. This makes a larger supply of human agency requisite in agricul- 
ture; and the more mouths there are to be fed, the smaller will be the sur- 
plus produce, which alone is disposable. 



CHAP. XI. ON DISTRIBUTION. 339 

alternation of crops, and of the most approved methods of cul- 
tivation, (a) 

In the second place, the consumption is unthrifty and un- 
profitable; for a great part of it is mere waste, and yields no 
human gratification whatever. To speak of one article alone, 
that is, of tiring, which is an object of great value in districts, 
where coal and wood are scarce; the waste of it is enormous 
in the huts of the peasantry, lighted as they often are by the 
door-way only, and admitting the rain down the chimney 
while the fire is burning. Unwholesome beverage or food, 
and the indulgence of the ale-house, are like injurious modes 
of consumption. 

In fine, towns and villages would be more thickly spread, 
and would besides present an appearance of greater affluence, 
were the generality of the inhabitants more active and in- 
dustrious, and actuated by the laudable emulation, tinctured 
perhaps with some little vanity, rather of possessing every ob- 
ject of real utility, and exhibiting in their domestic arrange- 
ments the utmost order and neatness, than of living in indo- 
lence upon the rent of a trifling patrimony, or the scanty 
salary of some useless public employ. The small proprietor 
with an income of 1 or 2000/r. per annum, just sufficient to 
vegetate upon, might double or triple it perhaps by adding 
the revenue derivable from personal industry; and even those, 
engaged in useful occupations, do not push them to the full 
extent of their activity and intelligence. Moreover, the spirit 
of inquiry and improvement has probably been disheartened by 
the example of frequent ill success; although the failure has 
commonly been occasioned by the want of judgment, perse- 
verance and frugality. 

National population is uniformly proportionate to the quan- 
tum of national production; but it may vary locally within the 
limits of each state, according to the favourable, or unfavoura- 
ble operation of local circumstances. A particular district will 
be rich, because its soil is fertile, its inhabitants industrious, 
and possessed of capital accumulated by their frugality; in like 
manner as a family will surpass its neighbours in wealth, be- 
cause of its superior intelligence and activity. The bounda- 
ries and political constitutions of states affect population only, 
inasmuch as they affect the national production. The influ- 
ence of religion and national habits upon population is pre- 
cisely analogous. All travellers agree that protestant are 
both richer and more populous than catholic countries; and 
the reason is, because the habits of the former are more con- 
ducive to production. 



(o) These causes of impoverishment are chiefly referable to the minute 
division of landed property; the baneful efTects of which, upon agricultural 
improvement and productive pov/er, have been well observed upon in the 
Edinburgh Review, No xvii. art. 1. 1". 



340 ON DISTRIBUTION. book ii. 



SECTION II. 

Of the influence of the Quality of a national product upon 
the local distribution of the Population. 

For the earth to be cultivated, it is necessary that popula- 
tion should bespread over its surface; for industry and com- 
merce to flourish, it is desirable to bring it together in those 
spots, where the arts may be exercised with the most advan- 
tage; that is to say, where there can be the greatest subdivi- 
sion of labour. The dyer naturally establishes himself near 
the clothier; the druggist near the dj^er; the agent, or owner, 
of a vessel employed in the transport of drugs will approxi- 
mate in locality to the druggist; and so of other producers in 
general. 

At the same time, all such as live without labour on the in- 
terest of capital, or the rent of landed property, are attracted 
to the towns, where they find brought to a focus every luxury 
to feed their appetites, as well as a choice of society, and a 
variety of pleasure and amusement. The charms of a town 
life attract foreign visiters, and all such as live by their labour, 
but are free to exercise it wherever they like. Thus, towns 
become the abode of literary men and artisans, and likewise 
the seat of government, of courts of justice, and most other 
public establishments; and their population is enlarged by the 
addition of all the persons attached to such establishments, 
and all who are accidentally brought thither by business. 

Not but what there is always a number of country residents, 
that are employed in manufacturing industry, exclusive of 
such as make it their abode in preference. Local conveni- 
ence, running water, the contiguity of a forest or a mine, will 
draw a good deal of machinery, and a number of labourers in 
manufacture, out of the precincts of towns. There are, like- 
wise, some kinds of work, which must be performed in the 
neighbourhood of the consumers; that of the tailor, the shoe- 
maker, or the farrier; but these are trifling compared with the 
manufacturing industry of all kinds executed in towns. 

Writers on political economy have calculated, that a thriv- 
ing country is capable of supporting in its towns, a population 
e^ual to that of the country. Some examples lead to an opi- 
nion, that it could support a still greater proportion, were its 
industry directed with greater skill, and its agriculture con- 
ducted with more intelligence and less waste, even supposing 
its soil to be of very moderate fertility.* Thus much at least 

* There is good reason to believe, tluit tlie total joopulation of Eng-laiid 
is more than the double of that employed in her internal agricultui-e. From 



CHAP. XI. ON DISTRIBUTION. 341 

is certain, that, when the towns raise product for foreign con- 
sumption, they are then enabled to draw from abroad provi- 
sions in return, and may sustain a population much larger in 
proportion to that of the country. Of this we have instances 
m the numerous petty states, whose territory alone is barely 
sufficient to afford subsistence to one of the suburbs of their 
capital. 

Again, the cultivation of pasture land, requiring much less 
human labour than that of arable, it follows, that, in grazing- 
countries, a greater proportion of the inhabitants can apply 
themselves to the arts of industry; which are therefore more 
attended to in pasture than in corn countries. Witness Flan- 
ders, Holland, and Normandy that was. (b) 

From the period of the irruption of the barbarians into the 
Roman Empire, down to the 17th century, that is to say, to a 
date almost within living memory, the towns made but little 
figure in the larger states of Europe. That portion of the 

the returns laid before parliament 1811, it appears there were in Great 
Britain, inclusive of Wales and Scotland, 895,998 families employed in ag- 
riculture; and that the total number of families amounted to 2,544,215, which 
would g-ive but a third of the population to the purposes of agriculture. 

According to Arthur Young, the country population of France, within 
her old limits, was ..... 20,521,538 

And that of the cities and towns, - - 5,709,270 



Making a total of .... 26,230,808 

Supposing him to be correct, France, witliin her old boundary, could 
maintain, on tliis principle, a population of 41 millions, supposing her mere- 
ly to double her agricultural population; and of 60 milUons, supposing her 
industry were equally active with that of Great Britain, (a) 

It is the general remark of travellers, that the traffic of the great roads 
of France is much less, than might be expected, in a country possessing so 
mau}^ natural advantages. This may be attributed chiefly to tl>e small 
number and size of her towns; for it is the communication from town to 
town that peoples the great road; that of the rural population being princi- 
pally from one part of the village or farm to another. 



(a) Our author has here fallen into a palpable error. The ratio of the 
agricultural, to the total population of Great Britain, has not been varied 
as above stated, solely, or even chiefly by the multiplication of the commer- 
cial and manufacturing classes; but by the transfer of the human labour spar- 
ed in agriculture to the two other branches of industry. Agriculture might 
occupy one third only of the population of France, and yet t)ie total popu- 
lation be decreased and not multiplied. T. 

(i) This position is too general. A pastoral nation, devoting the whole 
of its ten-itory to pasture, could spare a very small proportion of its popu- 
lation for commerce and manufacture; witness Tartary and the Pampas of 
South America. Where a dense manufacturing and commercial popvila- 
tion makes it advantageous to the land-holder to devote his land to pasture, 
and look to foreigners for the supply of corn, as in Holland, a small propor- 
tion of the population may, indeed, be required for domestic, but a large 
proportion will be required for the animation of foreign, agriculture. T. 



343 ON DISTRIBUTION. book ir. 

population, which was thought to live upon the cultivators of 
the land, was not then, as now, composed principally of mer- 
chants and manufacturers, but consisted of a nobility, surround- 
ed by numerous retainers, of churchmen and other idlers, the 
tenants of the chateau^ the abbey, or the convent, with their 
several dependencies; very few of them living within the towns. 
The products of manufacture and commerce were very limited 
indeed; the manufacturers were the poor cottagers, and the 
merchants mere pedlers; a few rude implements of husbandry, 
and some very clumsy utensils and articles of furniture, an- 
swered all the purposes of cultivation and ordinary life. The 
fairs, held three or four times in the year, furnished commodi- 
ties of a superior quality, which we should now look upon with 
contempt; and what rare household articles, stuffs, or jewels, 
of price, were from time to time imported from the commer- 
cial cities of Italy, or from the Greeks of Constantinople, were 
regarded as objects of uncommon luxury and magnificence, far 
too costly for any but the richest princes and nobles. 

In this state of things, the towns of course made but a poor 
figure. Whatever magnificence they may possess in our time 
is of very modern date. In all the towns of France together, 
it would be impossible to point out a single handsome range 
of buildings, or fine street, of two hundred years' antiquity. 
There is nothing of anterior date, with the exception of a few 

fothic churches, but clumsy tenements huddled together in 
irty and crooked streets, utterly impassable to the swarm of 
carriages, cattle, and foot-passengers, that indicates the present 
population and opulence. 

No country can yield the utmost agricultural produce it is 
equal to, until every part of its surface be studded with towns 
and cities. Few manufactures could arrive at perfection, with- 
out the conveniences they afibrd; and, without manufactures, 
what is there to give in exchange for agricultural products? 
A district, whose agricultural products can find no market, 
feeds not half the number of inhabitants it is capable of sup- 
porting; and the condition, even of those it does support, is 
rude enough, and destitute both of comfort and refinement; 
they are in the lowest stage of civilization. But, if an indus- 
trious colony comes to establish itself in the district, and gra- 
dually forms a town, whose inhabitants increase till they equal 
the numbers of the original cultivators, the town will find sub- 
sistence on the agricultural product of the district, and the 
cultivators be enriched by the product of the industry of the 
town. 

Moreover, towns offer indirect channels for the export of 
the agricultural values of the district to a distant market. The 
raw products of agriculture are not easy of transport, because 
the expense soon swallows up the total price of the commodi- 
ty transported. Manufactured produce has greatly the ad- 
vantage in this respect; for industry will frequently attach 
very considerable value to a substance of little bulk and weight. 



CHAP. XI. ON DISTRIBUTION. 343 

By the means of manufacture, the raw products of national 
agriculture are converted into manufactured goods of much 
more condensed value, which will defray the charge of a more 
distant transport, and bring a return of produce adapted to the 
wants of the exporting country. 

There are many of the provinces of France, that are mis- 
erable enough at present, yet want nothing but towns to bring 
them into high cultivation. Their situation would, indeed, be 
hopeless, were we to adopt the system of that class of econo- 
mists, which recommends the purchase of manufactures from 
foreign countries, with the raw produce of domestic agricul- 
ture. (1) . 

However, if towns owe their origin and increase to the con- 
centration of a variety of manufactures, great and small, manu- 
factures, again, are to be set in activity by nothing but pro- 
ductive capital; and productive capital is only to be accumu- 
lated by frugality of consumption. Wherefore, it is not 
enough to trace the plan of a town, and give it a name; before 



(1) [The slow progress ofagriculture in these provinces of France is not at- 
tributable to the want of towns in the midst of them; towns and cities are a 
consequence, not the cause of the general prosperity of a country. Nor 
would the adoption of a different policy from that which recommends the 
purchase of manufactures from foreign countries with the raw produce of 
domestic agriculture, improve the situation of these districts. A system of 
policy which should attempt by restraints or encouragements, to divert a 
portion of the capital and industry employed in agriculture or commerce 
from those channels towards the erection of a town, or the establishment of 
a manufactory, with a view to promote the better cultivation of the soil, 
would be subversive of this end. 

To what causes then must the misery, said by our author to prevail in 
those provinces be ascribed, or what has retarded their agricultural improve- 
ment? The prosperity ofagriculture, as well as that of every other branch 
of industry, depends upon the unrestrained operation of individual interest; 
not only furnishing motives to exertion, but knowledge to direct that exer- 
tion. All that is necessary to enable a state to reach the highest pitch of 
opulence, is not to disturb the action of this important principle. The ob- 
stacles, it will accordingly be found, which have opposed the progress of 
improvement in the countries alluded to, may be traced to the interference 
by the public authorities with the salutary operation of this powerful mo- 
tive of action, or, in other words, to their bad laws and political institutions. 
Sometimes imposing restraints on the cultivator, and exposing him to num- 
berless oppressions, either by prescribing the mode in which the soil shall 
be cultivated, or the products it shall yield. And, when not thus directly 
interfering with the business of production, prohibiting the exportation of 
the raw produce of the soil, and thereby depriving it of the best market. 
At other times harassing the husbandman with taxation, the shameful ine- 
qualities of which, whilst they relieve tlie higlier orders, permit the bur- 
den to fall, almost exclusively, on his shoulders, or depriving him of the 
freedom of trade from province to pi'ovince within his own country; but, 
above all, by perpetuating the inheritance of landed property in particular 
bodies or families, without the power of alienation. These are a few of the 
corrupt and barbarous laws whicii have retarded the agriculture, not of these 
particular provinces of France only, but of many of the fairest portions of 
Europe.] Amehicats Editoji. 



344 ON DISTRIBUTION. book ii. 

it can have real existence, it must be gradually supplied with 
industrious hands, mechanical skill, implements of trade, raw 
materials, and the necessary subsistence of those engaged in 
industry, until the completion and sale of their products. 
Otherwise, instead of founding a city, a mere scaffolding is 
run up, which must soon fall to the ground, because it rests 
upon no solid foundation. This was the case with regard to 
Ecatherinoslaw, in the Crimea; and was, indeed, foreseen by 
the emperor Joseph II., who assisted at the ceremony of its 
foundation, and laid the second stone in due form: " The em- 
press of Russia and myself," said he to his suite, " have com- 
pleted a great work in a single day: she has laid the first stone 
of a city, and I have laid the finishing one." 

Nor will capital alone suffice to set in motion the mass of 
industry and the productive energy necessary to the formation 
and aggrandizement of a city, unless it present also the advan- 
tages of locality and of beneficent public institutions. The 
local position of Washington, it should seem, is adverse to its 
progress in size and opulence; for it has been outstripped by 
most of the other cities of the Union; (1) whereas, Palmyra, 
in ancient times, grew both wealthy and populous, though in 
the midst of a sandy desert, solely because it had become the 
entrepot of commerce between Europe and eastern Asia. The 
same advantage gave importance and splendour'to Alexandria, 
and, at a still more remote period, to Egyptian Thebes. The 
mere will of a despot could never have made it the city of a 
hundred gates, and of the magnitude and populousness record- 
ed by Herodotus. Its grandeur must have been owing to its 
vicinity to the Red Sea and the channel of the Nile, and to its 
central position between India and Europe, (a) 

If a city can not be raised, neither does it seem, that its 
further aggrandizement can be arrested by the mere fiat of the 
monarch. Paris continued to increase, in defiance of abun- 

(c) There is some stretch of Imagination In this. Probably the Egyptian 
Thebes was itself the centre of manufacture and commerce in its day, and 
not its entrepot; indeed, there is no reason to suppose a very active inter- 
course between India and Europe to have existed at so early a period; and, 
if it had, Thebes would hardly have been the entrepot. But central India 
furnishes itself instances of cities containing as large a population. Nineveh 
and Babylon seem to have been quite as populous; each was probably the 
central point of an enormous domestic industry. T. 



(1) [The local position of Washington, perhaps, is not as advantageous 
as that of some of the other cities of the Union, it certainly, however, has 
not been adverse to its progress in population and wealth. In the year 
1800, when Washington became the seat of the General Government, its 
whole population amounted to 3,210; according to the census of 1820 it 
now contains 13,322 inhabitants, and 2,208 buildings, 925 of which were of 
brick. It can not, therefore, be said to have been outstripped by most of 
the other cities in the progress of improvement.] American Editor. 



CHAP. XI. ON DISTRIBUTION. 345 

dance of regulations issued by the government of the day to 
limit its extension. The only effectual barrier is that opposed 
by natural causes, which it would be very difficult to define 
with precision, for it consists rather of an aggregate of little 
inconveniences, than of any grand or positive obstruction. In 
overgrown cities, the municipal administration is never well 
attended to; a vast deal of valuable time is lost in going from 
one quarter to another; the crossing and jostling is immense 
in the central parts; and the narrow streets and passages, hav- 
ing been calculated for a much smaller population, are unequal 
to the vast increase of horses, carriages, passengers, and traffic 
of all sorts. This evil is felt most seriously at Paris, and ac- 
cidents are growing more frequent every day; yet new streets 
are now building on the same defective plan, with a certain 
prospect of a like inconvenience in a very few years hence. 



51 



BOOK III. 

OF THE CONSUMPTION OF WEALTH. 



CHAPTER I. 



OF THE DIFFERENT KINDS OF CONSUMPTION. 



In the course of my work, I have frequently been obliged 
to anticipate the explanation of terms and notions which, in 
the natural order, should have been postponed to a later period 
of the investigation. Thus, I was obliged in the first book to 
explain the sense, in which I used the term, consumption, 
because production can not be efiected without consumption. 

My reader will have seen from the explanation there given, 
that, in like manner as by production is meant the creation, 
not of substance, but of utility, so by consumption is meant 
the destruction of utility, and not of substance, or matter. 
When once the utility of a thing is destroyed, there is an end 
of the source and basis of its value; — an extinction of that, 
which made it an object of desire and of demand. It thence- 
forward ceases to possess value, and is no longer an item of 
wealth. 

Thus, the terms, to consume, to destroy the utility, to 
annihilate the value of any thing, are as strictly synonymous 
as the opposite terms to produce, to communicate utility, 
to create value, and convey to the mind precisely the same 
idea. Consumption, then, being the destruction of value, is 
commensurate, not with the bulk, the weight, or the number 
of the products consumed, but with their value. Large con- 
sumption is the destruction of large value, whatever form that 
value may happen to have assumed. 

Every product is liable to be consumed; because the value, 
which can be added to, can likewise be subtracted from, any 
object. If it has been added by human exertion or industiy, 
it may be subtracted by human use, or a variety of accidents. 



348 ON CONSUMPTION. book iii. 

But it can not be more than once consumed; value once de- 
stroyed can not be destroyed a second time. Consumption is 
sometimes rapid, sometimes gradual, A house, a ship, an im- 
plement of iron, are equally consumable as a loaf, a joint of 
meat, or a coat. Consumption again may be but partial. A 
horse, an article of furniture, or a house when re-sold by the 
possessor, has been but partially consumed; there is still a re- 
sidue of value, for which an equivalent is received in exchange 
on the re-sale. Sometimes consumption is involuntary, and 
either accidental, as when a house is burnt, or a vessel ship- 
wrecked, or contrary to the consumer's intention, as when a 
cargo is thrown overboard, or stores set on fire to prevent their 
falhng into enemies' hands. 

Value may be consumed, either long after its production, or 
at the very moment, and in the very act of production, as in 
the case of the pleasure afforded by a concert, or theatrical 
exhibition. Time and labour may be consumed; for labour, 
applicable to an useful purpose, is an object of value, and, when 
once consumed, can never be consumed again. 

Whatever can not possibly lose its value is not liable to con- 
sumption. A landed estate can not be consuined; but its an- 
nual productive agency may; for, when once that agency has 
been exerted, it can not be exerted again. The improvements 
of an estate may be consumed, although their value may pos- 
sibly exceed that of the estate itself; for these improvements 
are the effect of human exertion and industry; but the land it- 
self is inconsumable.* 

So likewise it is with any industrious faculty. One may 
consume a labourer's day's work, but not his faculty of work- 
ing; which, however, is liable to destruction by the death of 
the person possessing it. 

All products are consumed sooner or later; indeed they are 
produced solely for the purpose of consumption, and, when- 
ever the consumption of a product is delayed after it has reacn- 
ed the point of absolute maturity, it is value inert and neutral- 
ized for the time. For, as all value may be employed re-pro- 
ductively, and made to yield a profit to the possessor, the with- 
holding a product from consumption is a loss of the possible 
profit, in other words, of the interest its value would have 
yielded, if usefully employed.! 

* Some materials are capable of receiving and discharging the same kind 
of value many times over; as linen, which will undergo repeated washing. 
The cleanliness given it by the laundress, is a value wholly consumed on 
each occasion, along with a part of that of the linen itself. 

■\ The values not consumed sooner or later in a useful way are of little mo- 
ment; such are provisions spoiled by keeping, products lost accidentally, 
and those whose use has become obsolete, or which have never been used 
at all, owing to the failure of the demand for them, wherein value origi- 
nates. Values buried, or concealed, are commonly withdrawn but for a 
time from consumption; when found, it is always the interest of the finder to 
to turn them to account, which he can not do without submitting them to 



CHAP. I. ON CONSUMPTION. 349 

But, products being universally destined for consumption, 
and that too in the quickest way, how, it may be asked, can 
there be ever an accumulation of capital, that is to say, of va- 
lues produced? 

1 answer — that value may be accumulated, without being 
necessarily vested all the while in the same identical product, 
provided only that it be perpetuated in some product or other. 
Now, values employed as capital are perpetuated by re-pro- 
duction; the various products of which capital consists, are 
consumed like all other products; but their value is no sooner 
destroyed by consumption, than it re-appears in another, or a 
similar substance. A manufactory can not be kept up, without 
a consumption of victuals and clothes for the workmen, as well 
as of the raw material of manufacture; but, while value in 
those forms is undergoing consumption, new value is commu- 
nicated to the object of manufacture. The items, that com- 
posed the capital so expended, are consumed and gone; but the 
capital — the accumulated value, still exists, and re-appears 
under a new form, applicable to a second course of consump- 
tion. Whereas, if consumed unproductively, it never re-ap- 
pears at all. 

The annual consumption of an individual is, the aggregate 
of all the values consumed by that individual within the year. 
The annual consumption of a nation is, the aggregate of values 
consumed within the year by all the individuals and commu- 
nities, whereof the nation consists. 

In the estimate of individual or national consumption, must 
be included every kind of consumption, whatever be its mo- 
tive or consequence, whether productive of new value or not; 
in like manner, as the estimate of the annual production of a 
nation comprises the total value of its products raised within 
the year. Thus, a soap manufactory is said to consume such 
or such a quantity or value of alkali in a year, although this 
value be re-produced from the manufactory in the shape of soap; 
on the other hand, it is said to produce annually such and such 
a quantity or value of soap, although the production may have 
cost the destructionof a great variety of values, which, if deduct- 
ed, would vastly reduce the apparent product. By annual 

consumption. In this case, the only loss isthatof tlie profit derivable from 
them during the period of their disappearance, and may be reckoned equiva- 
lent to the interest for that time. 

The same observation applies to the minute saving's, successively laid by 
until the moment of investment, the aggregate of which is, doubtless, con- 
siderable. The loss, resulting from this inertness of capital, may be partial- 
ly remedied by moderating tlie duties on transfer, by extending to the ut- 
most the facility of circulation, and by the establishment of banks of depo- 
site, in which capital may be safely vested, and whence it may readily be with- 
drawn. In times of political confusion, and under an arbitrav}' government, 
many will prefer to keep their capital inactive, concealed, and unproduc- 
tive, either of profit, or gratification, rather than run the risk of its display. 
This latter evil is never felt under a good government. 



350 ON CONSUMPTION. book iil 

production or consumption, national or individual, is there- 
fore meant, the gross, and not the net amount.* 

Whence it naturally follows, that all the commodities, which 
a nation imports, must be reckoned as part of its annual pro- 
duct, and all its exports as part of its annual consumption. 
The trade of France consumes the total value of the silk it ex- 
ports to the United States; and produces, on the other hand, 
the total value of cotton received in return. And, in like 
manner, the manufacture of France consumes the value of al- 
kali employed by the soap-boiler, and produces the value of 
soap derived from the concern. 

The total annual consumption of a nation, or an individual, 
is a very different thing from the aggregate of capital. A 
capital may be wholly or partially consumed several times in 
a year. When a shoemaker buys leather, and cuts and works 
it up into shoes, there is so much capital consumed and re- 
produced. Every time he repeats the operation, there is so 
much more capital consumed. Suppose the leather purchas- 
ed to amount to 200 Jr. , and the operation to be repeated 12 
times in the year, there will have been an annual consump- 
tion of 2400 Jr. upon a capital of 200 Jr. On the other hand, 
there may be portions of his capital, implements of trade, 
for instance, which it may take several years to consume. 
Of this part of his capital he may consume annually but i or 
Jg. perhaps. 

In each country, the wants of the consumer determine the 
quality of the product. The product most wanted is most in 
demand; and that which is most in demand yields the largest 
profit to industry, capital, and land, which are therefore em- 
plo3^ed in raising this particular product in preference; and, 
vice versa, when a product becomes less in demand, there is 
less profit to be got by its production; it is, therefore, no long- 
er produced. All the stock on hand falls in price; the low 
price encourages the consumption, which soon absorbs the 
stock in hand. 

The total national consumption may be divided into the 
heads of public consumption, and private consumption; the 
former is eficcted by the public, or in its service; the latter 
by individuals or families. Either class may be productive or 
unproductive. 

In every community, each member is a consumer; for no 
one can subsist, without the satisfaction of some necessary 
wants, however confined and limited; on the other hand, all, 
who do not live on mere charity, or gratuitous bounty, con- 
tribute somehow to production, by their industry, their capi- 
tal, or their land; wherefore, the consumers may be said to be 
themselves the producers; and the great bulk of consumption 
takes place amongst the middling and poorer classes, whose 

* For the distinction between the gross &ndthQ net product, vide supra. 
Book II. chap. 5. 



CHAP. II. ON CONSUMPTION. 351 

numbers more than counterbalance the smallness of the share 
allotted to each.* 

Opulent, civilized, and industrious nations, are greater con- 
sumers than poor ones, because thej^ are infinitely greater pro- 
ducers. They aiinually, and in some cases, several times in 
the course of the year, re-consume their productive capital, 
which is thus continually renovated; and consume, unproduc- 
tively, the greater part of their revenues, whether derived from 
industry, from capital, or from land. 

It is not uncommon to find authors proposing, as the model 
for imitation, those nations, whose wants are few; whereas, 
it is far preferable to have numerous wants, along with the 
power to gratify them. This is the way at once to multi- 
ply the human species, and to give to each a more enlarged 
existence. 

Stewartt extols the Lacedaemonian policy, which consisted 
in practising the art of self-denial in the extreme, without 
aiming at progressive advancement in the art of production. 
But herein the Spartans were rivalled by the rudest tribes of 
savages, which are commonly neither numerous nor amply 
provided. Upon this principle, it would be the very acme of 
perfection to produce nothing and to have no wants; that is to 
say, to annihilate human existence. 



CHAPTER II. 



OP THE EFFECT OP CONSUMPTION IN GENERAL. 

The immediate effect of consumption of every kind is, the 
loss of value, consequently, of wealth, to the owner of the ar- 
ticle consumed. This is the invariable and inevitable conse- 

* It is probable, that, in all countries, anywise advanced in industry, the 
revenues of industry exceed those of capital and land united, and, conse- 
quently, that the consumption of those deriving income solel}' from indus- 
try, and wholly dependent for subsistence upon their personal faculties, 
exceeds that of both capitalists and landlords together. It is not uncom- 
mon to meet with a manufactory, that, with a capital, say of 600,000 _/»-. 
will pay daily in wages to its people, SOQfr., which, with the deduction of 
Sundays and holidays, makes 90,000 fr. per annum; if to this be added, 
20,000 fr. more for the net profits of personal superintendence and manage- 
ment, it will give a total of 110,000 /r. per annum, for the revenue of in- 
dustry alone. The same capital, vested in land at but 20 years' purchase, 
would yield a revenue of 30,000 /r. only. 

The cultivation by metayers, the very lowest description of farmers, gives 
to them, and their subordinate labourers' industry, a revenue equal to that 
of the land jointly with the capital, which is advanced by the proprietor. 

■j- Book II, chap. 14. 



352 ON CONSUMPTION. book m. 

quence, and should never be lost sight of in reasoning on this 
matter. A product consumed is a value lost to all the world 
and to all eternity; but the further consequence, that may 
follow, will depend upon the circumstances and nature of the 
consumption. 

If the consumption be unproductive, there usually results 
the gratification of some want, but no reproduction of value 
whatever; if productive, there results the satisfaction of no 
want, but a creation of new value, equal, inferior, or superior 
in amount to that consumed, and profitable or unprofitable to 
the adventurer accordingly.* 

Thus, consumption may be regarded as an act of barter, 
wherein the owner of the value consumed gives up that value 
on the one hand, and receives in return, either the satisfaction 
of a personal want, or a fresh value, equivalent to the value 
consumed. 

It may be proper here to remark, that consumption, pro- 
ductive of nothing beyond a present gratification, requires no 
skill or talent in the consumer. It requires neither labour nor 
ingenuity to eat a good dinner, or dress in fine clothes. t On 
the contrary, productive consumption, besides yielding no 
immediate or present gratification, requires an exertion of 
combined labour and skill, or, of what has all along been de- 
nominated, industry. 

When the owner of a product ready for consumption has 
himself no industrious faculty, and wishes, but knows not 
how, to consume it productively, he lends it to some one more 
industrious than himself, who commences by destroying it, 
but in such a way, as to reproduce another, and thereby ena- 
ble himself to make a full restitution to the lender, after re- 
taining the profit of his own skill and labour. The value re- 
turned consists of difierent objects from that lent it is true: in- 
deed, the condition of a loan is in substance this; to replace the 

* This may be illustrated by the burning of fuel in a grate or furnace. The 
fuel burnt serves, either to give warmth, or to cook victuals, boil dyeing 
ingredients, and the like, and thereby to increase their value. There is no 
utility in the mere gratuitous act of burning, except inasmuch as it tends 
to satisfy some human want, that of wai'mth for instance; in which case, the 
consumption is unproductive; or inasmuch as it confers upon a substance 
submitted to its action, a value, that may replace the value of the fuel con- 
sumed; in which case the consumption is productive. 

If the fuel, burnt for the sake of warmth, produce either no warmth at 
all or very little; or that burnt to give value to a substance give it no value, 
or a less value, than the value consumed in fuel, the consumption will be 
ill-judged and improvident. 

■j- There is unquestionably a sort of talent requisite in the expenditure of 
a large income with credit to the proprietor, so as to gratify personal taste, 
without awakening the self-love of others; to oblige, without the sense of 
humiliation; to labour for the public good, without alarming individual in- 
terests. But this kind of talent is referable rather to the head of practical, 
while its influence upon the rest of mankind falls within the province of 
theoretical, morality. 



CHAr. II. ON CONSUMPTION. 353 

value lent, of whatever amount, say, of 10,000 /r., at a time 
specified, by other value, equivalent to the same amount of 
silver coin of the like weight and quality at the time of re- 
payment. An object, lent on condition of specific restitution, 
can not be available for reproduction; because, by the terms of 
the loan, it is not to be consumed. 

Sometimes a producer is the consumer of his own product; 
as when the farmer eats his own poultry or vegetables; or the 
clothier wears his own cloth. But, the objects of human 
consumption being far more varied and numerous, than the 
objects of each person's production respectively, most opera- 
tions of consumption are preceded by a process of barter. He 
first turns into money, or receives in that shape, the yalues 
composing his individual revenue; and then changes again 
that money for the articles he purposes to consume. Where- 
fore, in common parlance, to spend and to consume have be- 
come nearly synonymous. Yet by the mere act of buying, 
the value expended is not lost; for the article purchased has 
likewise a value, which may be parted with again for what it 
cost, if it has not been bought over-dear. The loss of value 
does not happen till the actual consumption, after which the 
value is destroyed; it then ceases to exist, and is not the object 
of a second consumption. For this reason, it is, that, in do- 
mestic life, the bad management of the wife soon runs through 
a moderate fortune; for she in general regulates the daily con- 
sumption of the family, which is the chief source of expense, 
and one that is always recurring. 

This will serve to expose the error of the notion, that where 
there is no loss of money, there can be no loss of wealth. It 
is the commonest thing in the world to hear it roundly as- 
serted, that the money spent is not lost, but remains in the 
country; and, therefore, that the country can not be impover- 
ished by its internal expenditure. It is true, the value of the 
money remains as before; but the object, or the hundred ob- 
jects, perhaps, that have been successively bought with the same 
money, have been consumed, and their value destroyed. 

Wherefore, it is superfluous, I had almost said ridiculous, to 
confine at home the national money, for the purpose of pre- 
serving national wealth. Money by no means prevents the 
consumption of value, and the consequent diminution of 
wealth; on the contrary, it facilitates the arrival of consuma- 
ble objects at their ultimate destination; which is a most bene- 
ficial act, when the end is well chosen, and the result satis- 
factory. Nor would it be correct even to maintain, that the 
export of specie is at all events a loss, although its presence in 
the country may be no hindrance to consumption or to the 
diminution of wealth. For, unless it be made without any view 
to a return, which is rarely the case, it is in fact the same thing 
as productive consumption; being merely a sacrifice of one va- 
lue, for the purpose of obtaining another. Where no return 
- 52 



354 ON CONSUMPTION. book hi. 

whatever is in view, there indeed is so much loss of national 
capital; but the loss would be quite as great, were goods, and 
not money, so exported. 



CHAPTER III. 



or THE EFFECT OF PRODUCTIVE CONSUMPTION. 

The nature of productive consumption has been explained 
above in Book I. The value absorbed by it is what has been 
called. Capital. The trader, manufacturer, and cultivator, 
purchase the raw material* and productive agency, which 
they consume in the preparation of new products; and the im- 
mediate effect is precisely the same, as that of unproductive 
consumption; viz. to create a demand for the objects of their 
consumption, which operates upon their price, and upon their 
production; and to cause a destruction of value. But the ulti- 
mate effect is different; there is no satisfaction of a human want, 
and no resulting gratification, except that accruing to the ad- 
venturer from the possession of the fresh product the value of 
which replaces that of the products consumed, and commonly 
affords him a profit into the bargain. 

To this position, that productive consumption does not im- 
mediately satisfy any human want, a cursory observer may 
possibly object, that the wages of labour, though a produc- 
tive outlay, go to satisfy the wants of the labourer, in food, 
raiment, and amusement perhaps. But, in this operation, 
there is a double consumption: 1. of the capital consumed 
productively in the purchase of productive agency, wherefrom 
results no human gratification: 2. of the daily or weekly reve- 
nue of the labourer, i. e. of his productive agency, the recom- 
pense for which is consumed unproductively by himself and his 
family, in like manner as the rent of the manufactory, which 
forms the revenue of the landlord, is by him consumed unpro- 
ductively. And this does not imply the consumption of the 
same value twice over, first productively, and afterwards un- 
productively; for the values consumed are two distinct values, 

* The raw materials of maimfactiu'e and commerce are, the products 
bought with a view to the communication to them of further value. Cali- 
coes are raw material to the calico-printer, and printed calicoes to the 
dealer who buys them for re-sale or export. In commerce, every act of 
piu-chase is an act of consumption-, and every act of re-sale, an act of re- 
production. 



CHAP. III. ON CONSUMPTION. n55 

resting upon bases altogether different. The first, the produc- 
tive agency of the labourer, is the effect of his inuscular power 
and skill, which is itself a positive product, bearing value 
like any other. The second is a portion of capital, given 
by the adventurer in exchange for that productive agency. 
After the act of exchange is once completed, the consumption 
of the value given on either side is contemporaneous, but with 
a different object in view; the one being intended to create a 
new product, the other to satisf)'' the wants of the productive 
agent and his family. Thus, the object, expended and con- 
sumed by the adventurer, is the equivalent he receives for his 
capital; and that, consumed unproductively by the labourer, is 
the equivalent for his revenue. The interchange of these two 
values by no means makes them one and the same. 

So likewise, the intellectual industry of superintendence is 
reproductively consumed in the concern; and the profits, ac- 
cruing to the adventurer as its recompense, are consumed un- 
productively by himself and his family. 

In short, this double consumption is precisely analogous to 
that of the raw material used in the concern. The clothier 
presents himself to the wool-dealer, with 1000 crowns in his 
hand: there are, at this moment, two values in existence; on 
the one side, that of the 1000 crowns, which is the result of 
previous production, and now forms a part of the capital of 
the clothier; on the other, the wool constituting a part of the 
annual product of a grazing farm. These products are inter- 
changed, and each is separately consumed; the capital convert- 
ed into wool, in a way to produce cloth; the product of the 
farm, converted into crown-pieces, in the satisfaction of the 
wants of the farmer, or his landlord. 

Since every thing consumed is so much lost, the gain of re- 
productive consumption is equal, whether proceeding from re- 
duced consumption, or from enlarged production. In China, 
they make a great saving in the consumption of seed-corn, 
by following the drilling, in lieu of the broad-cast, method. 
The effect of this saving is precisely the same, as if the land 
were, in China, proportionately more productive than in Eu- 
rope.* 

In manufacture, when the raw material used is of no value 
whatever, it is not to be reckoned as forming any part of the re- 
quisite consumption of the concern; thus, the stone used by 
the lime-burner, and the sand employed by the glass-blower, 
are no part of their respective consumption, wherever they 
have cost them nothing. 

A saving of productive agency, whether of industry, of land, 
or of capital, is equally real and effectual, as a saving of raw 
material; and it is practicable in two ways; either by making 

* One of the suite of Lord Macartney estimated the saving of grain in 
China, by this method alone, to be equal to the supply of the whole popu- 
lation of Great Britain. 



356 ON CONSUMPTION. book hi. 

the same productive means yield more agency; or by obtain- 
ing the same result from a smaller quantity of productive 
means. 

Such savings generally operate in a very short time to the 
benefit of the community at large: they reauce the charges of 
production; and, in proportion as the economical process be- 
comes better understood, and more generally practised, the 
competition of producers brings the price of the product gra- 
dually to a level with the charges of production. But, for this 
very reason, all, who do not learn to economize like their 
neighbours, must necessarily lose, while others are gaining. 
Manufacturers have been ruined by hundreds, because they 
would go to work in a grand style with too costly and com- 
plex an apparatus, provided of course at an excessive expense 
of capital. 

Fortunately, in the great majority of cases, self-interest is 
most sensibly and immediately affected by a loss of this kind; 
and in the concerns of business, like pain in the human frame, 
gives timely warning of injuries, that require care and repara- 
tion. If the rash or ignorant adventurer in production were 
net the first to suffer the punishment of his own errors or mis- 
conduct, we should find it far more common than it is to dash 
into improvident speculation; which is quite as fatal to public 
prosperitv, as profusion and extravagance. A merchant, that 
spends 50,000 yr. in the acquisition of 30,000/r., stands, in 
respect to his private concerns and to the general wealth of the 
community, upon exactly the same footing, as a man of fashion, 
who spends 20,000yr. in horses, mistresses, gluttony, or osten- 
tation; except, perhaps, that the latter has more pleasure and 
personal gratification for his money.* 

What has been said on this subject in Book I. of this work, 
makes it needless to enlarge here upon the head of productive 
consumption. I shall, therefore, henceforward direct my read- 
er's attention to the subject of unproductive consumption, its 
motives, and consequences; premising, that in what I am about 
to say, the word, consumption, used alone, will import unpro- 
ductive consumption, as it does in common conversation. 

* There is almost insuperable difficulty in estimating with precision the 
consumption and production of value; and individuals have no other means 
of knowing, whether their fortune be increased or diminished, except by- 
keeping regular accounts of their receipt and expenditure; indeed, all pru- 
dent persons are careful to do so, and it is a duty imposed by law in the 
case of traders. An adventurer could otherwise scarcel}' know whether 
his concern were gainful or losing, and might be involving himself and his 
creditors in ruin. Besides keeping regular accounts, a prudent manager 
will make previous estimates of the value that will be absorbed in the con- 
cern, and of its probable proceeds: the use of which, like that of a plan 
or design in building', is to give an approximationj though it can afford no 
certainty. 



CHAP. IV. ON CONSUMPTION. 357 



CHAPTER IV. 



OF THE EFFECT OF UNPRODUCTIVE CONSUMPTION IN GENERAL. 

Having just considered the nature and effect of consumption 
in general, as well as the general effect of productive consump- 
tion in particular, it remains only to consider in this, and the 
following chapters, such consumption as is effected with no 
other end or object in view, than the mere satisfaction of a 
want, or the enjoyment of some pleasurable sensation. 

Whoever has thoroughly comprehended the nature of con- 
sumption and production, as displayed in the pi^eceding pages, 
will have arrived at the conviction, that no consumption, 
of the class denominated unproductive, has any ulterior effect, 
beyond the satisfaction of a want by the destruction of exist- 
ing value. It is a mere exchange of a portion of existing 
wealth on the one side, for human gratification on the other, 
and nothing more. Beyond this, what can be expected? — 
reproduction? how can the same identical utility be afforded a 
second time? Wine can not be both drunk and distilled into 
brandy too. Neither can the object consumed serve to estab- 
lish a fresh demand, and thus indirectl}' to stimulate future 
productive exertion; for it has already been explained that the 
only effectual demand is created by the possession of where- 
withal to purchase, — ofsomethingtogive in exchange; and what 
can that be, except a product, which, before the act of ex- 
change and consumption, must have been an item, either of 
revenue or of capital? The existence and intensity of the de- 
mand must invariably depend upon the amount of revenue and 
of capital, the bare existence of revenue and of capital is all 
that is necessary for the stimulus of production, which nothing 
else can stimulate. The choice of one object of consumption 
necessarily precludes that of another; what is consumed in the 
shape of silks can not be consumed in the shape of linens or 
woollens; nor can what has once been devoted to pleasure or 
amusement be made productive also of more positive or sub- 
stantial utility. 

Wherefore, the sole object of inquiry, with regard to unpro- 
ductive consumption, is, the degree of gratification result- 
ing from the act of consumption itself; and this inquiry will, 
in the remainder of this chapter, be pursued in respect of un- 
productive consumption in general, after which we shall give 
in the following chapters, a separate consideration to that of 
individuals, and that of the public, or community at large. The 
sole point is, to weigh the loss, occasioned to the consumer by 



358 ON CONSUMPTION. book hi. 

his consumption, against the satisfaction it affords him. The 
degree of correctness, with which the balance of loss and gain 
is struck, will determine whether the consumption be judicious 
or otherwise; which is a point that, next to the actual produc- 
tion of wealth, has the most powerful influence upon the well 
or ill-being of families and of nations. 

In this point of view, the most judicious kinds of consump- 
tion seem to be: — 

1. Such as conduce to the satisfaction of positive wants; by 
which term I mean those, upon the satisfaction of which de- 
pends the existence, the healtli and the contentment of the ge- 
nerality of mankind; being the very reverse of such, as are 
generated by refined sensuality, pride, and caprice. Thus, 
the national consumption will, on the whole, be judicious, if it 
absorb articles rather of convenience than of display; the more 
linen and the less lace; the more plain and wholesome dishes, 
and the fewer dainties; the more warm clothing, and the less 
embroidery, the better. In a nation whose consumption is so 
directed, the public establishments will be remarkable rather 
for utility than splendour, its hospitals will be less magnificent 
than salutary and extensive; its roads well furnished with inns, 
rather than unnecessarily wide and spacious, and its towns 
well paved, though with few palaces to attract the gaze of 
strangers. 

The luxury of ostentation affords a much less substantial and 
solid gratification, than the luxury of comfort, if I may be al- 
lowed the expression. Besides, the latter is less costly, that 
is to say, involves the necessity of a smaller consumption; 
whereas the former is as insatiable; it spreads from one to ano- 
ther, from the mere proneness to imitation; and the extent to 
which it may reach, is absolutely unlimited. («) " Pride," 
says Franklin, " is a beggar quite as clamorous as want, but 
infinitely more insatiable." 

Taking society in the aggregate it will be found that, one 
with another, the gratification of real wants, is more important 
to the community, than the gratification of artificial ones. The 
wants of the rich man occasion the production and consump- 
tion, of an exquisite perfume perhaps, those of the poor man, 
the production and consumption of a good warm winter cloak: 
supposing the value to be equal, the diminution of the gene- 
ral wealth is the same in both cases; but the resulting gratifi- 

(a) Tt is stvang-e, that so acute a writer should not have perceived, that 
the mischief of pure individual vanity can never be very formidable, be- 
cause the pleasure it affords loses in intensity, in proportion to its diffu- 
sion. Indeed, as far as individual consumption is concerned, attacks upon 
luxury are mere idle declamations; for the productive energies of mankind 
will always be directed towards an object, with a force, and in a degree, 
proportionate to the intensity of the want for it. It is the extravagance of 
public luxury alone that can ever be formidable; this, as well as public con- 
sumption of every kind, it is always the intei-est of the community at large 
to contract, and that of public functionaries to expand, to the utmost. T. 



CHAP. IV. ON CONSUMPTION. 359 

cation will, in the one case, be trifling, transient, and scarce- 
ly perceptible; in the other, solid, ample, and of long dura- 
tion.* 

2. Such as are the most gradual, and absorb products of the 
best quality. A nation or an individual, will do wisely to di- 
rect consumption chiefly to those articles, that are the longest 
time in wearing out, and the most frequently in use. Good 
houses and furniture are, therefore, objects of judicious pre- 
ference; for there are few products that take longer time to 
consume than a house, or that are of more frequent utility; in 
fact, the best part of one's life is passed in it. Frequent changes 
of fashion are unwise; for fashion takes upon itself to throw 
things away long before they have lost their utility, and some- 
times before they have lost even the freshness of novelty, thus 
multiplying consumption exceedingly, and rejecting as good 
for nothing what is perhaps still useful, convenient, or even 
elegant. So that a rapid succession of fashions impoverishes 
a state, as well by the consumption it occasions, as by that 
which it arrests. 

There is an advantage in consuming articles of superior 
quality, although somewhat dearer, and for this reason: in eve- 
ry kind of manufacture, there are some charges that are al- 
ways the same, whether the product be of good, or bad quali- 
ty. Coarse linen will have cost, in weaving, packing, stor- 
ing, retailing, and carriage, before it comes to the ultimate 
consumer, quite as much trouble and labour, as linen of the 
finest quality; therefore, in purchasing an inferior quality, the 
only saving, is the cost of the raw material; the labour and 
trouble must always be paid in full, and at the same rate; yet 
the product of that labour and trouble are much quicker con- 
sumed, when the linen is of inferior, than when it is of supe- 
rior quality. 

This reasoning is applicable indifferently to every class of 
product; for in every one there are some kinds of productive 
agency, that are paid equally without reference to quality; and 
that agency is more profitably bestowed in the raising of pro- 
ducts of good than of bad quality; therefore, it is generally 
more advantageous for a nation to consume the forrner. But 
this can not be done, unless the nation can discern between 
good and bad, and have acquired taste for the former; where- 
in again appears the necessity of knowledget to the further- 
ance of national prosperity; and unless, besides, the bulk of the 
population, be so far removed above penury, as not to be ob- 
liged to buy whatever is the cheapest in the first iustance, al- 
though it be in the long run the dearest to the consumer. 

* The lending at interest what might have been spent in frivolity is of tiiis 
latter class; for interest can not be paid, unless the loan be productively- 
employed; in which case it will go in part to the maintenance of the labour- 
ing classes. 

f By knowledge I would always be understood to mean, acquaintance 
with the time state of things, or generally with truth in every branch. 



360 ON CONSUMPTION. book hi. 

It is evident, that the interference of public authority in re- 
gulating the details of the manufacture, supposing it to succeed 
in making the manufacturer produce goods of the best quality, 
which is very problematical, must be quite ineffectual in pro- 
moting their consumption; for it can give the consumer, nei- 
ther the taste of what is of the better quality, nor the ability 
to purchase. The difficulty lies, not in finding a producer, 
but in finding a consumer. It will be no hard matter to supply 
good and elegant commodities, if there be consumers both will- 
ing and able to purchase them. But such a demand can ex- 
ist only in nations enjoying comparative affluence; it is afflu- 
ence, that both furnishes the means of buying articles of good 
quality, and gives a taste for them. Now the interference of 
authority is not the road to affluence, which results from acti- 
vity of production, seconded by the spirit of frugality; — from 
habits of industry pervading every channel of occupation, and 
of frugality tending to accumulation of capital. In a country, 
where these qualities are prevalent, and in no other can indi- 
viduals be at all nice or fastidious in what they consume. On 
the contrary, profusion and embarrassment are inseparable 
companions; there is no choice when necessity drives. 

The pleasures of the table, of play, of pyrotechnic exhibi- 
tions, and the like, are to be reckoned amongst those of short- 
est duration. I have seen villages, that, although in want of 
good water, yet do not hesitate to spend in a wake or festival, 
that lasts but one day, as much money as would suffice to con- 
struct a conduit for the supply of that necessary of life, and a 
fountain or public cistern on the village green; the inhabitants 
preferring to get once drunk in honour of the squire or saint, 
and to go day after day with the greatest inconvenience, and 
bring muddy water from half a league distance. The filth and 
discomfort prevalent in rustic habitations are attributable, part- 
ly to poverty, and partly to injudicious consumption. 

In most countries, if a part of what is squandered in frivo- 
lous and hazardous amusements, whether in town or country, 
were spent in the embellishment and convenience of the habi- 
tations, in suitable clothing, in neat and useful furniture, or in 
the instruction of the population, the whole community would 
soon assume an appearance of improvement, civilization, and 
affluence, infinitely more attractive to strangers, as well as 
more gratifying to the people themselves. 

3. The collective consumption of numbers. There are some 
kinds of agency, that need not be multiplied in proportion to 
the increased consumption. One cook can dress dinner for ten 
as easily as for one; the same grate will roast a dozen joints 
as well as one; and this is the reason, why there is so much 
economy in the mess-table of a college, a monastery, a regi- 
ment, or a large manufactory, in the supply of great numbers 
from a common kettle or kitchen, and in the dispensaries of 
cheap soups, 

4. And lastly, on grounds entirely different, those kinds of 



CHAP. IV. ON CONSUMPTION. 361 

consumption are judicious, which are consistent with moral 
rectitude; and, on the contrary, those, which infringe its laws, 
generally end in public, as well as private calamity. But it 
would be too wide a digression from my subject to attempt the 
illustration of this position. 

It is observable, that great inequality of private fortune is 
hostile to those kinds of consumption, that must be regarded 
as most judicious. In proportion as that inequality is more 
marked, the artificial wants of the population are more nume- 
rous, the real ones more scantily supplied, and rapid con- 
sumption more common and destructive. The patrician spend- 
thrifts and imperial gluttons of ancient Rome thought they 
never could squander enough. Besides, immoral kinds of 
consumption are infinitely more general, where the extremes 
of wealth and poverty are found blended together. In such a 
state of society, there are a few, who can indulge in the refine- 
ment of luxury, but a vast number, who look on their enjoy- 
ments with envy, and are ever impatient to imitate them. 
To get into the privileged class is the grand object, be the 
means ever so questionable; and those, who are little scrupu- 
lous in the acquirement, are seldom more so in the employ- 
ment of wealth, (a) 

The government has, in all countries, avast influence, in de- 
termining the character of the national consumption; not only 
because it absolutely directs the consumption of the state itself, 
but because a great proportion of the consumption of individu- 
als is guided by its will and example. If the government in- 
dulge a taste for splendour and ostentation, splendour and os- 
tentation will be the order of the day, with the whole host of 
imitators; and even those of better judgment and discretion 
must, in some measure, yield to the torrent. For, how sel- 
dom are they independent of that consideration and good opin- 
ion, which, under such circumstances, are to be earned, not 
by personal qualities, but by a course of extravagance they 
can not approve? 

First and foremost in the list of injudicious kinds of con- 
sumption stand those which yield disgust and displeasure, in 
lieu of the gratification anticipated. Under this class may be 
ranged, excess and intemperance in private individuals; and, in 

(a) In a wholesome state of society, when public institutions are not 
needlessly multiplied, and all tend to the common purpose of public good, 
this very impatience and anxiety is conducive to the welfare, and not to 
the injury, of society. Indeed, great inequality of fortune seems to be a 
necessary accompaniment to social wealth and g-reat national productive 
power. It is the prospect of great prizes only, that can stimulate to the 
extreme of intellectual and corporeal industry; and there is no instance on 
record of a nation far advanced in industry, in wliich great inequality of 
fortune has not existed. One bishopric of Durham will tempt more cleri- 
cal adventurers, than five hundred moderate benefices; and the example of 
a single Arkwright or Peele will stimulate manufacturing science and ac- 
tivity, more than a whole Manchester of moderate cotton-spinning coii- 
cerns. T. 

53 



362 ON CONSUMPTION. book iii. 

the state, wars undertaken with the motive of pure vengeance, 
like that of Louis XIV., in revenge for the attacks of a Dutch 
newspaper, or with that of empty glory, which leads common- 
ly to disgrace and odium. Yet such wars are even less to be 
deplored for the waste of national wealth and resources, than 
for the irremediable loss of personal virtue and talent sacri- 
ficed in the struggle; a loss which involves families in distress 
enough, when exacted by the public good, and by the pressure 
of inexorable necessity; but must be doubly shocking and af- 
flicting, when it originates in the caprice, the wickedness, the 
folly, or the ungovernable passions of national rulers. 



CHAPTER V. 



OF INDIVIDUAL CONSUMPTION ITS MOTIVES AND ITS EF- 
FECTS. 

The consumption of individuals, as contrasted with that of 
the public or community at large, is such as is made with the 
object of satisfying the wants of families and individuals. 
These wants chiefly consist in those of food, raiment, lodging, 
and amusement. They are supplied with the necessary arti- 
cles of consumption in each department, out of the respective 
revenue of each family or individual, whether derived from 
personal industry, from capital, or from land. The wealth of 
a family advances, declines, or remains stationary, according 
as its consumption equals, returns, or falls short of its revenue. 
The aggregate of the consumption of all the individuals, add- 
ed to that of the government for public purposes, forms the 
grand total of national consumption. 

A family, or indeed a community, or nation, may certainly 
consume the whole of its revenue, without being thereby im- 
poverished; but it by no means follows, that it either must, or 
would act wisely, in so doing. Common prudence would coun- 
sel to provide against casualties. Who can say with certainty, 
that his income will not fall off", or that his fortune is exempt 
from the injustice, the fraud, or the violence of mankind? 
Lands may be confiscated; ships may be wrecked; litigation 
may involve him in its expenses and uncertainties. The rich- 
est merchant is liable to be ruined by one unlucky speculation, 
or by the failure of others. Were he to spend his whole in- 
come, his capital might, and in all probability would, be con- 
tinually on the decline. 

But, supposing it to remain stationary, should one be con- 



€iiAp. V. ON CONSUMPTION. 3G3 

tent with keeping it so? A fortune, however large, will seem 
little enough, when it comes to be divided amongst a number 
of children. And, even if there be no occasion to divide it, 
what harm is there in enlarging it; so it be done by honoura- 
ble means? what else is it, but the desire of each individual to 
better his situation, that suggests the frugality that accumulates 
capital, and thereby assists the progress of industry, and leads 
to national opulence and civilization? Had not previous gene- 
rations been actuated by this stimulus, the present one would 
now be in the savage state: and it is impossible to say, how 
much farther it may yet be possible to carry civilization. It 
has never been proved to my satisfaction, that nine tenths of 
the population must inevitably remain in that degree of mise- 
ry and semi-barbarism, which they are found in at present in 
most countries of Europe. 

The observance of the rules of private economy keeps the 
consumption of a family within reasonable bounds: that is to 
say, the bounds prescribed in each instance by a judicious 
comparison of the value sacrificed in consumption, with the sa- 
tisfaction it affords. None but the individual himself, can fair- 
ly and correctly estimate the loss and the gain, resulting to 
himself or family from each particular act of consumption; for 
the balance will depend upon the fortune, the rank, and the 
wants of himself and family; and, in some degree, perhaps, 
upon personal taste and feelings. To restrain consumption 
within too narrow limits, would involve the privation of gratifi- 
cation, that fortune has placed within reach; and, on the other 
hand, a too profuse consumption might trench upon resources, 
that it might be but common prudence to husband.* 

Individual consumption has constant reference to the charac- 
ter and passions of the consumer. It is influenced alternately 
by the noblest and the vilest propensities of our nature; at one 
time it is stimulated by sensuality; at another by vanity, by 
generosity, by revenge, or even by covetousness. It is check- 
ed by prudence or foresight, by groundless apprehension, by 
distrust, or by selfishness. As these various qualities happen 
in turn to predominate, they direct mankind in the use they 
make of their wealth. In this, as in every other action of life, 

* On this ground sumptitar}' laws are superfluous and unjust. The in- 
dulg-ence proscribed is either within the means of the individual or not; in 
the former case, it is an act of oppression to proliibit a gratification involv- 
ing no injury to others, equally unjustifiable as prohibition in any otherpar- 
ticular; in the latter, it is at all events nugatory to do so; for there is no 
occasion for legal interference, where pecuniary circumstances alone are an 
effectual bar. Every irregularity of tliis kind vvorlis its own punishment. 
It has been said, that it is the duty of the government to check those habits, 
which have a tendency to lead people into expenses exceeding their means, 
but it will be found, that such habits can only be introduced by the exam- 
ple and encouragement of the public authorities themselves. In all other 
circumstances, neither custom nor fasliion will ever lead the different classes 
of society into any expenses, but what are suitable to their respective 
nieaiis. 



364 ON CONSUMPTION. book m. 

the line of true wisdom is the most difficult to observe. Hu- 
man infirmity is perpetually deviating to the one side or the 
other, and seldom steers altogether clear of excess.* 

In respect to consumption, prodigality and avarice are the 
two faults to be avoided: both of them neutralize the benefits 
that wealth is calculated to confer on its possessor; prodigality 
by exhausting, avarice by not using, the. means of enjoyment. 
Prodigality is, indeed, the more amiable of the two, because it 
is allied to many amiable and social qualities. It is regarded 
with more indulgence, because it imparts its pleasures to 
others; yet it is of the two the more mischievous to society; 
for it squanders and makes away with the capital, that should 
be the support of industry; it destroys industry, the grand 
agent of production, by the destruction of the other agent, 
capital. If, by expense and consumption, are meant those 
kinds only which minister to our pleasures and luxuries, it is 
a great mistake to say that money is good for nothing but to 
be spen{, and that products are only raised to be consumed. 
Money may be employed in the work of reproduction; when 
so employed it must be productive of great benefit; and, every 
time that a fixed capital is squandered, a corresponding quan- 
tity of industry must be extinguished, in some quarter or other. 
The spendthrift, in running through his fortune, is at the same 
time exhausting, jpro tanto, the source of the profits upon in- 
dustry. 

The miser, who, in the dread of losing his money, hesitates 
to turn it to account, does, indeed, nothing to promote the 
progress of industry; but at least he can not be said to reduce 
the means of production. His hoard is scraped together by 
the abridgment of his personal gratifications, not at the ex- 
pense of the public, according to the vulgar notion; it has been 
withdrawn from no productive occupation, and will at any rate 
reappear at his death, and be available for the purpose of ex- 
tending the operations of industry, if it be not squandered by 
his heirs, or so efiectually concealed, as to evade all search or 
recovery. 

It is absurd in spendthrifts to boast of their prodigality, 
which is quite as unworthy the nobleness of our nature, as the 
sordid meanness of the opposite character. There is no merit 
in consuming all one can lay hands upon, and desisting only 
when one can get no more to consume; every animal can do 
as much; nay, there are some animals that set a better exam- 
ple of provident management. It is more becoming the cha- 
racter of a being gifted with reason and foresight, never to con- 
sume, in any instance, without some reasonable object in view. 
At least, this is the course that economy would prescribe. 

In short, economy is nothing more than the direction of hu- 
man consumption with judgment and discretion, — the know- 

• The weaker sex is, from the very circumstance of inferiority in strength 
of mind, exjiosed to greater excess both of avarice and prodigality. 



CHAP. V. ON CONSUMPTION. 365 

ledge of our means, and of the best mode of employing them. 
There is no fixed rule of economy; it must be guided by a 
reference to the fortune, condition, and wants of the consumer. 
An expense, that may be authorized by the strictest economy 
in a person of moderate fortune, would, perhaps, be pitiful in 
a rich man, and absolute extravagance in a poor one. In a 
state of sickness, a man must allow himself indulgences, that 
he would not think of in health. An act of beneficence, that 
trenches on the personal enjoyments of the benefactor, is de- 
serving of the highest praise; but it would be highly blameable, 
if done at the expense of his children's subsistence. 

Economy is equally distant from avarice and profusion. 
Avarice hoards, not for the purpose of consuming or repro- 
ducing, but for the mere sake of hoarding; it is a kind of" in- 
stinct, or mechanical impulse, much to the discredit of those 
in whom it is detected; whereas, true economy is the offspring 
of prudence and sound reason, and does not sacrifice necessa- 
ries to superfluities, like the miser, when he denies himself 
present comforts, in the view of luxury, ever prospective and 
never to be enjoyed. The most sumptuous entertainment may 
be conducted with economy, without diminishing, but rather 
adding to its splendour, which the slightest appearance of ava- 
rice would tarnish and deface. The economical man balances 
his means against his present or future wants, and those of his 
family and friends, not forgetting the calls of humanity. The 
miser regards neither family nor friends; scarcely attends to 
his own personal wants, and is an utter stranger to those of 
mankind at large. Kconomy never consumes without an ob- 
ject; avarice never willingly consumes at all: the one is a sober 
and rational study, the only one that supplies the means of 
fulfilling our duties, and being at the same time just and gene- 
rous; the other a vile propensity to sacrifice every thing to the 
sordid consideration of self. 

Economy has not unreasonably been ranked among the vir- 
tues of mankind; for, like the other virtues, it implies self-com- 
mand and control; and is productive of the happiest conse- 
quences; the good education of children, physical and moral; 
the careful attendance of old age; the calmness of mind, so ne- 
cessary to the good conduct of middle life; and that indepen- 
dence of circumstances which alone can secure against merce- 
nary motives, are all referable to this quality. Without it, 
there can be no liberality, none at least of a permanent and- 
wholesome kind; for, when it degenerates into prodigality, it 
is an indiscriminate largess, alike to deserving and undeserv- 
ing; stinting those who have claims in favour of those who 
have none. It is common to see the spendthrift reduced to beg 
a favour from people that he has loaded with his bounty; for 
what he gives now, one expects a return will some day be call- 
ed for; whereas, the gifts of the economical man are purely gra- 
tuitous; for he never gives except from his superfluities. The 



366 ON CONSUMPTION. book hi. 

latter is rich with a moderate fortune; but the miser and the 
prodigal are poor, though in possession of the largest resources. 

Economy is inconsistent with disorder, which stumbles 
blindfold over wealth, sometimes missing what it most de- 
sires, although close within its reach, and sometimes seizing 
and devouring what it is most interested in preserving; ever 
impelled by the occurrences of the moment, which it either 
can not foresee, or can not emancipate itself from; and always 
unconscious of its own position, and utterly incapable of 
choosing the proper course for the future. A household, 
conducted without order, is preyed upon by all the world: 
neither the fidelity of the servants, nor even the parsimony 
of the master, can save it from ultimate ruin. For it is ex- 
posed to the perpetual recurrence of a variety of little outgo- 
ings, on every occasion, however trivial.* 

Among the motives that operate to determine the consump- 
tion of individuals, the most prominent is luxury, that fre- 
quent theme of declamation, which, however, 1 should proba- 
bly not have dwelt upon, could I expect that every body will 
take the trouble of applying the principles I have been labour- 
ing to establish; and were it not always useful to substitute 
reason for declamation. 

Luxury has been defined to be, the use of superfluities.! 
For my own part, I am at a loss to draw the line between su- 
perfluities and necessaries; the shades of difierence are as in- 
distinct and completely blended as the colours of the rainbow. 

Taste, education, temperament, bodily health, make the de- 
grees of utility and necessity infinitely variable, and render it 

* I reinenibcr being- once in the country a witness of the numberless mi- 
nute losses, thiit neg-lectfiil housekeeping' entails. For want of a trumpeiy 
latch, the gate of the poultiy-yard was for ever open; there being- no means 
of closing' it externally, it was on the swing every time a person went out; 
and many of the poultry were lost in consequence. One day, a fine young 
porker made his escape into the woods, and the whole family, gardener, 
cook, milk-maid, &c., presently turned out in quest of the fugitive. The 
gardener was the first to discover the object of pursuit, and, in leaping a 
ditch to cut off his further escape, got a sprain that confined him to his bed 
for the next fortniglit; the cook fovmd the linen burnt, that she had left 
hung up before the fire to dry; and the milk-maid, having forgotten in her 
liaste to tie up the cattle properly in the cow-house, one of the loose cows 
had broken the leg of a colt that happened to be kept in the same shed. — 
The linen burnt, and the gardener's work lost, were worth full 20 crowns; 
and the colt about as much more: so that here was a loss in a few minutes 
of 40 crowns, purely for want of a latch, that might have cost a few sous at 
the utmost; and this in a household where the strictest economy was ne- 
cessary, to say nothing of the suffering of the poor man, or the anxiety and 
other troublesome incidents. The misfortune was to be sure not very se- 
rious, nor the loss very heavy; yet, when it is considered, that similar neglect 
was the occasion of repeated disasters of the same kind, and ultimately of 
the ruin of a worthy family, it was deserving of some little attention. 

f Steuart, Essay on Pol. Econ. book ii. c. 20. The same writer has in 
another passage observed, that every thing not absolutely Bfetessary to bare 
existence is a superfluity. 



CHAP. V. ON CONSUMPTION. 367 

impossible to employ, in an absolute sense, terms, which al- 
wa\'^s of necessity convey an idea of relation and comparison. 

The line of demarcation between necessaries and superflui- 
ties shifts with the fluctuating condition of society. Strictly 
speaking, mankind might exist upon roots and herbs, with a 
sheepskin for clothing, and a wigwam for lodging; 5?et, in the 
present state of European society, we cannot look upon bread 
or butcher's-meat, woollen-clothes or houses of masonry, as 
luxuries. For the same reason, the line varies also according 
to the varying circumstances of individual fortune; what is a 
necessary in a large town, or in a particular line of life, may, 
in another line of life, or in the country, be a mere superflui- 
ty. Wherefore, it is impossible exactly to define the bounda- 
ry between the one and the other. Smith has fixed it a little 
in advance of Steuart; including in the rank of necessaries, 
besides natural wants, such as the established rules of decency 
and propriety have made necessary in the lower classes of 
society. But Smith was wrong in attempting to fix at all what 
must, in the nature of things, be ever varying. 

Luxury may be said, in a general way, to be, the use or 
consumption of dear articles; for the term dear is one of rela- 
tion, and, therefore, may be properly enough applied in the 
definition of another term, whose sense is likewise relative. 
Luxury* with us in France conveys the idea rather of osten- 
tation than of sensuality; applied to dress, it denotes rather 
the superior beauty and impression upon the beholder, than 
superior convenience and comfort to the wearer; applied to the 
table, it means rather the splendour of a sumptuous banquet, 
than the exquisite fare of the solitary epicure. The grand 
aim of luxury in this sense is to attract admiration by the ra- 
rity, the costliness, and the magnificence of the objects dis- 
played, recommended probably neither by utility, nor con- 
venience, nor pleasurable qualities, but merely by their 
dazzling exterior and effect upon the opinions of mankind at 
large. Luxury conveys the idea of ostentation; but ostenta- 
tion has itself a far more extensive meaning, and comprehends 
every quality assumed for the purpose of display. A man 
may be ostentatiously virtuous, but is never luxuriously so; 
for luxury implies expense. 1 bus, luxury of wit or genius is 
a metaphorical expi'ession, implying a profuse display or ex- 
penditure, if it may be so called, of those qualities of the in- 
tellect, which it is the characteristic of good taste to deal out 
with a sparing hand. 

Although, with us in France, what we term luxury is 
chiefly directed to ostentatious indulgence, the excess and 
refinement of sensuality are equally unjustifiable, and of pre- 
cisely similar effect; that is to say, of a frivolous and incon- 

* The Eng-lish term luxury has a much more sensual meaning than the 
French luxe, and seems to comprise both luxe and luxure, the luxm, or luxu- 
ria, and luxuries of the Latin writers. 



368 ON CONSUMPTION. book iii. 

siderable enjoyment or satisfaction, obtained by a large con- 
sumption, calculated to satisfy more urgent and extensive 
wants. But I should not stigmatize as luxury that degree of 
variety or abundance, which a prudent and well informed per- 
son in a civilized community would like to see upon his table 
upon domestic and common occasions, or aim at in his dress 
and abode, when under no compulsion to keep up an appear- 
ance. I should call this degree of indulgence judicious and 
suitable to his condition, but not an instance of luxury. 

Having thus defined the term luxur}^, we may go on to in- 
vestigate its effect upon the well-ordering or economy of na- 
tions. 

Under the head of unproductive consumption is comprised 
the satisfaction of many actual and urgent wants, which is a 
purpose of sufficient consequence to outweigh the mischief, 
that must ensue from the destruction of values. But what is 
there to compensate that mischief, where such consumption 
has not for its object the satisfaction of such wants? where 
money is spent for the mere sake of spending, and value de- 
stroyed without any object beyond its destruction? 

It is supposed to be beneficial, at all events, to the produ- 
cers of the articles consumed. But it is to be considered, that 
the same expenditure must take place, though not, perhaps, 
upon objects quite so frivolous; for the money withheld from 
luxurious indulgences is not absolutely thrown into the sea; 
it is sure to be spent either upon more judicious gratifications 
or upon reproduction. In one way or other, all the revenue, 
not absolutely sunk or buried, is consumed by the receiver of 
it, or by some one in his stead: and in all cases whatever, the 
encouragement held out by consumption to the producer is co- 
extensive with the total amount of revenue to be expended. 
Whence it follows: 

1. That the encouragement which ostentatious extravagance 
affords to one class of production is necessarily withdrawn 
from another. 

2. That the encouragement resulting from this kind of con- 
sumption cannot increase, except in the event of an increase 
in the revenue of the consumers; which revenue, as we can 
not but know by this time, is not to be increased by luxurious, 
but solely by reproductive, consumption. 

How great, then, must be the mistake of those, who, on ob- 
serving the obvious fact, that the production always equals the 
consumption, as it must necessarily do, since a thing can not be 
consumed before it is produced, have confounded the cause 
with the effect, and laid it down as a maxim, that consump- 
tion originates production; therefore, that frugality is directly 
adverse to public prosperity, and that the most useful citizen 
is the one who spends the most. 

The partisans of the two opposite systems above adverted 
to, the economists, and the advocates of exclusive commerce, 
or the balance of trade, have made this maxim a fundamental 



CHAP. V. ON CONSUMPTION. 369 

article of their creed. The merchants and manufacturers, who 
seldom look beyond the actual sale of their products, or in- 
quire into the causes, which may operate to extend their sale, 
have warmly supported a position, apparently so consistent 
with their interests; the poets, who are ever apt to be seduced 
by appearances, and do not consider themselves bound to be 
wiser than politicians and men of business, have been loud in 
the praise of luxury*; and the rich have not been backward 
in adopting principles, that exalt their ostentation into a vir- 
tue, and their self-gratification into beneficence. t 

This prejudice, however, must vanish, as the increasing 
knowledge of political economy begins to reveal the real 
sources of wealth, the means of production, and the effect of 
consumption. Vanity may take pride in idle expense, but 
will ever be held in no less contempt by the wise, on account 
of its pernicious effects, than it has been all along, for the mo- 
tives by which it is actuated. 

These conclusions of theory have been confirmed by ex- 
perience. Misery is the inseparable companion of luxury. 
The man of wealth and ostentation squanders upon costly 
trinkets, sumptuous repasts, magnificent mansions, dogs, horses, 
and mistresses, a portion of value, which, vested in productive 
occupation, would enable a multitude of willing labourers, 
whom his extravagance now consigns to idleness and misery, 
to provide themselves with warm clothing, nourishing food, 
and household conveniencies. The gold buckles of the rich 
man leave the poor one without shoes to his feet; and the la- 

• Though it is not every subject that allows equal scope to poetical 
genius, it does not seem, that error affords a finer field than truth. The 
lines of Voltaire on the system of the world, and on the discoveries of 
Newton regarding the properties of light, are strictly conformable to the 
rules of science, and nowise inferior in beauty to those of Lucretius on the 
fanciful dogmas of the Epicurean school. But if Voltaire had been better 
acquainted with the principles of political economy, he would never have 
given utterance to such sentiments as the following: 

Sachez surtout que le luxe enrichit 
Un grand etat, s'il en perdun petit. 
Cette splendeur, cette pompe mondaine, 
D'un regne heureux est la marque certain.. 
Le riche est ne pour beaucoup depenser .... 

The progress of science compels those, who covet literary fame, to make 
themselves acquainted with general principles at the least; without a close 
adherence to truth and nature, there is little chance of permanent reputa- 
tion, even in the poetical department. 

f La Repuhlique a Men affaire 
De Gens, qui ne depensent rien,- 
Je ne sais d'homme necessaire, 
Que celui dont le luxe epand beaucoup de Men. 

La Fontaine, Avantage de la Science. 
" Were the rich not to spend their money freely," says Montesquieu, 
" the poor would starve." Esprit des Lois, liv. vii. c. 4. 
54 



370 ON CONSUMPTION. book hi. 

bourer will want a shirt to his back, while his rich neighbour 
glitters in velvet and embroidery. 

It is vain to resist the nature of things. Magnificence may 
do what it will to keep poverty out of sight, yet it will cross 
it at every turn, still haunting, as if to reproach it for its ex- 
cesses. This contrast was to be met with at Versailles, at 
Rome, at Madrid, and in every seat of royal residence. In a 
recent instance, it occurred in France in an afflicting degree, 
after a long series of extravagant and ostentatious administra- 
tion; yet the principle is so undeniable, that one would not 
suppose it had required so terrible an illustration.* 

Those, who are little in the habit of looking through the ap- 
pearance to the reality of things, are apt to be seduced by the 
glitter and the bustle of ostentatious luxury. They take the 
display of consumption as conclusive evidence of national pros- 
perity. If they could open their eyes, they would see, that 
a nation verging towards decline will for some time continue 
to preserve a show of opulence; like the establishment of a 
spendthrift on the high road to ruin. But this false glare can 
not last long: the effort dries up the sources of reproduction, 
and, therefore, must infallibly be followed by a state of apathy 
and exhaustion of the political frame, which is only to be 
remedied by slow degrees, and by the adoption of a regimen 
the very reverse to that, by which it has thus been reduced. 

It is distressing to see the fatal habits and customs of the 
nation one is attached to by birth, fortune, and social affec- 
tion, extending their influence over the wisest individuals, and 
those best able to appreciate this danger and foresee its disas- 

* There are other circumstances, that contribute to veil the residence of 
the court in an atmosphere of human misery. It is there, that personal ser- 
Tice is consumed b}^ wholesale; and that is of all things the most rapidly 
consumed, being-, indeed, consumed as fast as produced. Under this de- 
nomination, is to be comprised the agency of the soldiery, of menial ser- 
vants, of public functionaries, whether useful or not, of clerks, lawyers, 
judges, civilians, ecclesiastics, actors, musicians, di'olls, and numerous other 
hangers-on, who all crowd towards the focus of power and occupation, 
civil, judicial, military, or religious. It is there also, that material products 
seem to be more wantonly consumed. The choicest viands, tlie most beau- 
tiful and costly stuffs, the rarest works of art and fashion, all seem emulous 
to reach this general sink, whence little or nothing ever emerges. 

Yet, if the accumulated values, that are drained from every quarter of 
the national territory to feed the consumption of the seat of royalty, were 
distributed with any regard to equity, they would probably suffice to main- 
tain all classes in comfort andplent)^ Though such drains must always be 
calamitous, because they absorb value, and yield no return, at any rate the 
local populatioa might be pretty well off; but it is notorious that wealth is 
no where less equally diffused. The prince, the favourite, a mistress, or a 
bloated peculator, takes the lion's share, leaving to the subordinate drones 
the pittance assigned to them by the generosity or caprice of their superiors. 

The residence of an overgrown propi'ietor upon his estate then only 
tends to diffuse abundance and cheerfulness around him, when his expen- 
diture is directed to objects of utility, rather than of pomp; in which case, 
he is really an adventurer in agriculture, and an accumulator of capital in 
the shape of improvements and ameliorations. 



CHAP. V. ON CONSUMPTION. 371 

trous consequences. The number of persons, who have suffi- 
cient spirit and independence of fortune to act up to their prin- 
ciples, and set themselves forward as an example, is extremely- 
small. Most men yield to the torrent, and rush on ruin with 
their eyes open, in search of happiness; although it requires a 
very small share of philosophy to see the madness of this 
course, and to perceive, that, when once the common wants 
of nature are satisfied, happiness is to be found, not in the 
frivolous enjoyments of luxurious vanity, but in the moderate 
exercise of our physical and moral faculties. 

Wherefore, those, who abuse great power, or talent, by ex- 
erting it in diffusing a taste for luxury, are the worst enemies 
of social happiness. If there is one habit, that deserves more 
encouragement than another, in monarchies as well as repub- 
lics, in great states as well as small, it is this of economy. Yet, 
after all, no encouragement is wanted; it is quite enough to 
withdraw favour and honour from habits of profusion; to af- 
ford inviolable security to all savings and acquirements; to 
give perfect freedom to their investment and occupation in 
every branch of industry, that is not absolutely criminal. 

It is alleged, that, to excite mankind to spend, or consume, 
is to excite them to produce, inasmuch as they can only spend 
what they may acquire. This fallacy is grounded on the as- 
sumption, that production is equally within the ability of man- 
kind as consumption; that it is as easy to augment as to ex- 
pend one's revenue. But, supposing it were so, nay further, 
that the desire to spend, begets a liking for labour, although 
experience by no means warrants such a conclusion, yet there 
can be no enlargement of production, without an augmenta- 
tion of capital, which is one of the necessary elements of pro- 
duction; but it is clear, that capital can only be accumulated 
by frugality; and how can that be expected from those, whose 
only stimulus to production is the desire of enjoyment? 

Moreover, when the desire of acquirement is stimulated by 
the love of display, how can the slow and limited progress of 
real production keep pace with the ardour of that motive? 
will it not find a shorter road to its object, in the rapid and 
disreputable profits of jobbing and intrigue, classes of industry 
most fatal to national welfare, because they produce nothing 
themselves, but only aim at appropriating a share of the pro- 
ducts of other people? It is this motive, that sets in motion 
the despicable art and cunning of the knave, leads the petti- 
fogger to speculate on the obscurity of the laws, and the man 
of authority to sell to folly and wickedness that patronage, 
which it is his duty to dispense gratuitously to merit and to 
right. Pliny mentions having seen Paulina at a supper, dress- 
ed in a network of pearls and emeralds, that cost 40 millions 
of sestertii, (1) as she was ready to prove by her jeweller's 

(1) [About 140,000 dollai's. Some English ladles wear jewels of greater 



372 ON CONSUMPTION. book hi. 

bills. It was bought with the fruit of her ancestor's specula- 
tions. " Thus," says the Roman writer, " it was to dress out 
his grand-daughter in jewels at an entertainment, that Lollius 
forgot himself so far, as to lay waste whole provinces, to be- 
come the object of detestation to the Asiatics he governed, to 
forfeit the favour of Caesar, and end his life by poison." 

This is the kind of industry generated by love of display. 

If it be pretended, that a system, which encourages profu- 
sion, operates only upon the wealthy, and thus tends to a bene- 
ficial end, inasmuch as it reduces the evil of the inequality of 
fortune, there can be little difficulty in showing, that profusion 
in the higher, begets a similar spirit in the middling and lower, 
classes of society, which last must, of course, the soonest ar- 
rive at the limits of their income; so that, in fact, universal 
profusion has the effect of increasing, instead of reducing that 
inequality. Besides, the profusion of the wealthier class is 
always preceded, or followed, by that of the government, 
which must be fed and supplied by taxation, that is always 
sure to fall more heavily upon small incomes than on large 
ones.* 

The apologists of luxury have sometimes gone so far as to 
cry up the advantages of misery and indigence; on the ground, 
that, without the stimulus of want, the lower classes of man- 
kind could never be impelled to labour, so that neither the 
upper classes, nor society at large, could have the benefit of 
their exertions. 

Happily, this position is as false in principle as it would be 
cruel in practice. Were nakedness a sufficient motive of ex- 
ertion, the savage would be the most diligent and laborious, 
for he is the nearest to nakedness, of his species. Yet his in- 
dolence is equally notorious and incurable. Savages will often 
fret themselves to death, if compelled to work. It is observa- 
ble throughout Europe, that the laziest nations are those nearest 
approaching to the savage state; a mechanic in good circum- 
stances, at London or Paris, would execute twice as much 
work in a given time, as the rude mechanic of a poor district. 

• In favour of luxury, the following paradoxical argument has been ad- 
vanced; for what is too ridiculous to be hazarded in such a cause? "that, 
since luxury consumes superfluities only, the objects it destroys are of lit- 
tle real utility, and therefore the loss to society can be but small." There 
is this ready answer: the vahie of the objects consumed by luxury must 
have been reduced by the competition of producers to a level with the 
charges of production, wherein are comprised the profits of the producers. 
Objects of luxury are equally the product of land, capital, and industry, 
which might have been employed in raising objects of real utility, had the 
demand taken that direction; for production invariably accommodates itself 
to the taste of the consumers. 



value; but some read the passage in Pliny Quadringenties, instead of Quad' 
ragies Sestertium. This would make the jewels of Paulina worth 1,400,000 
dollars; the more probable sum.] AMEiiicAif EditoKo 



CHAP. VI. ON CONSUMPTION. 373 

Wants multiply as fast as they are satisfied; a man who has a 
jacket is for havin^^ a coat; and, when he has his coat, he must 
nave a great coat too. The artisan, that is lod2;ed in an apart- 
ment by himself, extends his views to a second; if he has two 
shirts, he soon wants a dozen, for the comfort of more fre- 
quent change of linen; whereas, if he has none at all, he never 
feels the want of it. No man feels any disinclination to make 
a further acquisition, in consequence of having made one al- 
ready. 

The comforts of the lower classes are, therefore, by no 
means incompatible with the existence of society, as too many 
have maintained. The shoemaker will make quite as good 
shoes in a warm room, with a good coat to his back, and 
wholesome food for himself and his family, as when perishing 
with cold in an open stall; he is not less skilful or inclined to 
work, because he has the reasonable conveniences of life. 
Linen is washed as well in England, where washing is carried 
on comfortably within doors, as where it is executed in the 
nearest stream in the neighbourhood. 

It is time for the rich to abandon the puerile apprehension 
of losing the objects of their sensuality, if the poor man's com- 
forts be promoted. On the contrary, reason and experience 
concur in teaching, that the greatest variety, abundance, and 
refinement of enjoyment are to be found in those countries, 
where wealth abounds most, and is the most widely diffused. 



CHAPTER VI. 



ON PUBLIC CONSUMPTION. 



SECTION I. 



Of the Nature and general Effect of Public Consumption. 

Besides the wants of individuals and of families which it is 
the object of private consumption to satisfy, the collection of 
many individuals into a community gives rise to a new class 
of wants, the wants of the society in its aggregate capacity, 
the satisfaction of which is the object of public consumption. 
The public buys and consumes the personal service of the 
minister, that directs its afiairs, the soldier, that protects it 
from external violence, the civil or criminal judge, that pro- 



274 ON CONSUMPTION. book m. 

tects the rights and interests of each member against the ag- 
gression of the rest. All these different vocations have their 
use, although they may often be unnecessarily multiplied or 
overpaid ; but that arises from a defective political organiza- 
tion, which it does not fall within the scope of this work to 
investigate. 

We shall see presently whence it is, that the public derives 
all the values, wherewith it purchases the service of its agents, 
as well as the articles its wants require. All we have to con- 
sider in this chapter is, the mode in which its consumption is 
operated, and the consequences resulting from it. 

If I have made myself understood in the commencement of 
this third book, my readers will have no difficulty in compre- 
hending, that public consumption, or that which takes place 
for the general utility of the whole community, is precisely 
analogous to that consumption, which goes to satisfy the wants 
of individuals or families. In either case, there is a destruc- 
tion of values, and a loss of wealth; although, perhaps, not a 
shilling of specie goes out of the country. 

By way of ensuring conviction of the truth of this position, 
let us trace from first to last the passage of a product towards 
ultimate consumption on the public account. 

The government exacts from a tax-payer the payment of a 
given tax in the shape of money. To meet this demand, the 
tax-payer exchanges part of the products at his disposal for 
coin, which he pays to the tax-gatherer:* a second set of 
government agents is busied in buying with that coin cloth 
and other necessaries for the soldiery. Up to this point, there 
is no value lost or consumed: there has only been a gratuitous 
transfer of value, and a subsequent act of barter: but the value 
contributed by the subject still exists in the shape of stores 
and supplies in the military depot. In the end, however, 
this value is consumed; and then the portion of wealth, which 
passes from the hands of the tax-payer into those of the tax- 
gatherer, is destroyed and annihilated. 

Yet it is not the sum of money that is destroyed: that has 
only passed from one hand to another, either without any 
return, as when it passed from the tax-payer to the tax-gath- 
erer; or in exchange for an equivalent, as when it passed from 
the government agent to the contractor for clothing and sup- 

* Although the capitalist and landholder receive their interest and rent 
■originally in the shape of money, and have, therefore, no occasion, to go 
through any previous act of exchange, to obtain wherewithal to pay the tax, 
yet such a previous exchange must have been effected by the adveaitur- 
er, who turns the land or capital to account. The effect is precisely the 
same, as if the rent or interest had been paid in kind; i. e. in the immediate 
products of the land or capital; and the landholder or capitalist had paid the 
tax either by the direct transfer of part of those products, or by first selling 
them, and afterwards paying over the proceeds. On this subject, vide su- 
pra. Book II. chap. 5, for the mode in which revenue is distributed amongst 
the community. 



CHAP. VI. ON CONSUMPTION. 375 

plies. The value of the money survives the whole operation, 
and goes through three, four, or a dozen hands, without any- 
sensible alteration; it is the value of the clothing and neces- 
saries that disappears, with precisely the same effect, as if the 
tax-payer had, with the same money, purchased clothing and 
necessaries for his own private consumption. The sole dif- 
ference isj that the individual in the one case, and the state 
in the other, enjoys the satisfaction resulting from that con- 
sumption. 

The same reasoning may be easily applied to all other 
kinds of public consumption. When the money of the tax- 
payer goes to pay the salary of a public officer, that officer 
sells his time, his talents, and his exertions, to the public, 
all of which are consumed for public purposes. On the other 
hand, that officer consumes, instead of the tax-payer, the value 
he receives in lieu of his services; in the same manner as any 
clerk or person in the private employ of the tax-payer 
would do. 

There has been long a prevalent notion, that the values, paid 
by the community for the public service, return to it again 
in some shape or other; in the vulgar phrase, that what gov- 
ernment and its agents receive is refunded again by their ex- 
penditure. This is a gross fallacy; but one, that has been 
productive of infinite mischief, inasmuch as it has been the 
pretext for a great deal of shameless waste and dilapidation. 
The value paid to government by the tax-payer is given with- 
out equivalent or return: it is expended by the government in 
the purchase of personal service, of objects of consumption: in 
one word, of products of equivalent value, which are actually 
transferred. Purchase or exchange is a very different thing 
from restitution.* 

Turn it which way you will, this operation, though often 
very complex in the execution, must always be reducible by 
analysis to this plain statement, A product consumed must 
always be a product lost, be the consumer who he may; lost 
without return wherever no value or advantage is received in 
return; but, to the tax-payer, the advantage derived from the 
services of the public functionary, or from the consumption 
effected in the prosecution of public objects, is a positive 
return. 

If, then, public and private expenditure affect social wealth 
in the same manner, the principles of economy, by which it 
should be regulated, must be the same in both cases. There 
are not two kinds of economy, any more than two kinds of 

• Dr. Hamilton, in his valuable tract upon The Naiimud Debt of Great 
Britain, illustrates the absurdity of the position here attacked, by com- 
paring- it to the "forcible entry of a robber into a merchant's house, who 
should take away his money, and tell him he did him no injury, for the 
money, or part of it, would be employed in purchasing the commodities he 
dealt in, upon which he would receive a profit." The encouragement af- 
forded by the public expenditure is precisely analogous. 



376 ON CONSUMPTION. book hi. 

honesty, or of morality. If a government or an individual 
consume in such a way, as to give birth to a product larger 
than that consumed, a successful effort of productive industry 
will be made. If no product result from the act of consump- 
tion, there is a loss of value, whether to the state or to the in- 
dividual; yet, probably, that loss of value may have been 
productive of all the good anticipated. Military stores and 
supplies, and the time and labour of civil and military func- 
tionaries, engaged in the effectual defence of the state, are 
well bestowed, though consumed and annihilated; it is the 
same with them, as with the commodities and personal service, 
that have been consumed in a private establishment. The 
sole benefit resulting in the latter case is, the satisfaction, of a 
want; if the want had no existence, the expense or consump- 
tion is a positive mischief, incurred without an object. So 
likewise of the public consumption; consumption for the mere 
purpose of consumption, systematic profusion, the creation of 
an office, for the sole purpose of giving a salary, the destruc- 
tion of an article, for the mere pleasure of paying for it, are 
acts of extravagance either in a government or an individual, 
in a small state or a large one, a republic or a monarchy. 
Nay, there is more criminality in public, than in private ex- 
travagance and profusion; inasmuch as the individual squan- 
ders only what belongs to him; but the government has no- 
thing of its own to squander, being, in fact, a mere trustee of 
the public treasure.* 

What, then, are we to think of the principles laid down by 
those writers, who have laboured to draw an essential distinc- 
tion between public and private wealth; to show, that econo- 
my is the way to increase private fortune, but, on the contra- 
ry, that public wealth increases with the increase of public 
consumption: inferring thence this false and dangerous con- 
clusion, that the rules of conduct in the management of pri- 
vate fortune and of public treasure, are not only different, but 
in direct opposition? 

If such principles were to be found only in books, and had 
never crept into practice, one might suffer them without care 
or regret to swell the monstrous heap of printed absurdity; 
but it must excite our compassion and indignation to hear them 
professed by men of eminent rank, talents, and intelligence; 
and still more to see them reduced into practice by the agents 
of public authority, who can enforce error and absurdity at 
the point of the bayonet or mouth of the cannon, t 

* It is mere usurpation in a government, to pretend to a right over the 
property of individuals, or to act as if possessing such a right; and usurpa- 
tion can never constitute right; although it may confer possession. Were 
it otherwise, a thief, who had once, hy force or fraud, obtained possession 
of another man's property, could never be called upon to make restitution, 
when overpowered and taken prisoner, for he might set up the plea of 
legitimate ownership. 

■j- The reader will readily perceive, that this and many other passages. 



CHAP. VI. ON COxNSUMPTION. 377 

Madame de Maintenon mentions in a letter to the Cardinal 
de Noailles, that, when she one day urged Louis XIV. to be 
more liberal in charitable donations, he replied, that Royalty 
dispenses charity by its profuse expenditure; a truly alarming 
dogma, and one, that shows the ruin of France to have been 
reduced to principle.* False principles are more fatal than 
even intentional misconduct; because they are followed up 
with erroneous notions of self-interest, and are long persevered 
in without remorse or reserve. If Louis XIV. had believed 
his extravagant ostentation to have been a mere gratification 
of his personal vanity, and his conquests the satisfaction of 
personal ambition alone, his good sense and proper feeling 
would probably, in a short time, have made it a matter of con- 
science to desist, or at any rate, he would have stopt short for 
his own sake; but he was firmly persuaded, that his prodigality 
was for the public good as well as his own; so that nothing 
could stop him, but misfortune and humiliation, t 

wei'e written under the pressure of a military despotism, which had assum- 
ed the absokite disposal of the national resources, and suffered no one to 
express a doubt of the justice and policy of its acts. 

* Fenelon, Vauhan, and a very few more, of the most disting-uished ta- 
lent, had a confused idea of the ruinous tendency of this system; but they 
failed in impressing' the rest of the world with the same conviction, for want 
of just notions on the subject of the production and consumption of wealth. 
Thus Vauhan, in his Bixme royalc says, « the present misery of France is 
atti'ibutable, not to the rigour of the climate, the character of the inhabi- 
tants, or the barrenness of the soil: for the climate is most favourable, the 
people active, diligent, dextrous, and numerous: but to" the frequency and 
long' continuance of wai', and to the ignorance and neglect of economy.' 
Fenelon had expressed the same sentiments in several admirable passages 
of his Telemaque, but they passedformere declamation, as well they might; 
for he was not qualified to prove their truth and accui'acy. 

-j- When Voltaire tells us, speaking of the superb edifices of Louis XIV., 
that they were by no means burthensome to the nation, but served to cir- 
culate money in tlie community, he gives a decisive proof of the utter 
ignorance of the most celebrated French writers of his day upon these 
matters. He looked no further than the money employed on the occasion; 
and, when the view is limited to that alone, the extreme of prodigality ex- 
hibits no appearance of loss; for money is, in fact, an item, neither of reve- 
nue, nor of annual consumption. But a little closer attention will convince 
us of the fallacy of this position, which would lead us to the absurd infer- 
ence, that no consumption whatever has occurred within the yeai', when- 
ever the amount of specie at tlie end of it is found to be nowise diminish- 
ed. The vigilance of the historian should have traced the 900 millions of 
fr. expended on the chateau of Versailles alone, from the original produc- 
tion by the laborious efforts of the productive classes of the nation, to the 
first exchange into monej', wherewith to pay the taxes, through the second 
exchange into building- materials, painting, gilding, &c. to tlie ultimate 
consumption in that sliape, for the personal g-ratification of the vanity of 
tlie monarch. The money acted as a mere means of facilitating the trans- 
fers of value in the course of the transaction; and the winding up of the ac- 
count will show, a destruction of value to the amount of 900 millions oi'fr., 
balanced by the production of a palace, in need of constant repair, and of 
tlie splendid promenade of the gardens. 
55 



378 ON CONSUMPTION. book hi. 

So little were the true principles of political economy un- 
derstood, even by men of the greatest science, so late as the 
18th century, that Frederic II. of Prussia, with all his anxiety 
in search of truth, his sagacity, and his merit, writes thus to 
D'Alembert, in justification of his wars: 'My numerous ar- 
mies promote the circulation of money, and disburse impartial- 
ly amongst the provinces the taxes paid b}^ the people to the 
state.' Again I repeat, this is not the fact; the taxes paid to 
the government by the subject are not refunded by its expen- 
diture. Whether paid in money or in kind, they are converted 
into provisions and supplies, and in that shape consumed and 
destroyed by persons, that never can replace the value, be- 
cause they produce no value whatever.* It was well for Prus- 
sia that Frederic 11. did not square his conduct to his princi- 
ples. The good he did to his people, by the economy of his 
internal administration, more than compensated the mischief 
of his wars. 

Since the consumption of nations, or the governments which 
represent them, occasions a loss of value, and, consequently, of 
wealth, it is only so far justifiable, as there results from it some 
national advantage, equivalent to the sacrifice of value. The 
whole skill of government, therefore, consists in the continual 
and judicious comparison of the sacrifice about to be incurred, 
with the expected benefit to the community; for I have no he- 
sitation in pronouncing every instance, where the benefit is not 
equivalent to the loss, to be an instance of folly, or of crimi- 
nality, in the government. 

It is yet more monstrous, then, to see how frequently govern- 
ments, not content with squandering the substance of thepeo^ 
plet in folly and absurdity, instead of aiming at any return of 

Even land, tliough imperishable, may be consumed in the shape of the 
vahie received for it. It has been asserted, that France lost nothing by 
the sale of her national domains after the revolution, because they were all 
sold and transferred to French subjects; but what became of the capital paid 
in the shape of purchase-money, when it left the pockets of the purchasers? 
Was it not consumed and lost? 

* In the execution of a national military enterprise, two different values 
pass thi-ough the hands of the government or its agents: 1. The value paid 
in taxes by the public at large: 2. The value received in supplies and ser- 
vices from the parties affording them. For the first of these, no return 
whatever is made; for the second, an equivalent is paid in wages or purchase- 
money. Wherefore, there it has no ground for saying, that the govern- 
ment refunds with one hand what is received with the other; that the whole 
transaction is a mere circulation of value, and causes no loss to the nation; 
for the government returns but 1, where it receives 2; the loss of the other 
half falls upon the community at large. Thus, the national, being but the 
aggregate of individual, wealth, is diminished to the extent of the total 
consumption of the government, minus the product of the public establish- 
ment; as we shall presently see more in detail. 

■\ It has been seen in the concluding chapter of Book II., that, inasmuch 
as population is always commensurate with production, the obstruction of 
the progi'essive multiplication of products is a preventive check to the fur- 



CHAP. VI. ON CONSUMPTION. 379 

value, actually spend that substance in brinojinj^ down upon 
the nation calamities innumerable; practise exactions the most 
cruel and arbitrary, to forward schemes the most extrava2;ant 
and wicked; first rifle the pockets of the subject, to enable 
them afterwards to urge him to the further sacrifice of his 
blood. Nothing, but the obstinacy of human passion and 
weakness, could induce me again and again to repeat these un- 
palatable truths, at the risk of incurring the charge of declama- 
tion. 

The consumption effected by the government* forms so large 
a portion of the total national consumption, amounting some- 
times to a sixth, a fifth, or even a fourth partt of the total con- 
sumption of the community, that the system acted upon by the 
government, must needs have a vast influence upon the advance 
or decline of the national prosperity. Should an individual 
take it into his head, that the more he spends the more he gets, 
or that his profusion is a virtue; or should he yield to the pow- 
erful attractions of pleasure, or the suggestions of perhaps a 
reasonable resentment, he will in all probability be ruined, and 
his example will operate upon a very small circle of his neigh- 
bours. But a mistake of this kind in the government will en- 
tail misery upon millions, and possibly end in the national 
downfal or degradation. It is doubtless very desirable, that 
private persons should have a correct knowledge of their per- 

ther multiplication of the human race; and that the waste of capital, the 
extinction of industry, and the exhaustion of the sources of production, 
amounts to positive decimation of those in actual existence. A wicked or 
ignorant administration may, in this way, be a far more destructive scourge, 
than war with all its atrocities. 

* By government, I mean, the ruling power in all its branches, and under 
whatever constitutional form; it would be wrong to limit the term to the 
executive branch alone; the first enactment of a law is as much an act of 
authority, as its subsequent enforcement. 

j- The consumption of a nation may undoubtedly exceed its aggTegate 
annual revenue; but we can hardly suppose that of Great Britain to have 
done so; for she has evidently been advancing in opulence, up to the pre- 
sent time, whence it may be inferred, that her consumption, at the very 
utmost, only equals her revenue. Gentz, who will hardly be accused of 
underrating the financial resources of that country, estimated her total an- 
nual revenue at no more than 200 millions sterling; Dr. Beeke at 2i8 mil- 
lions, inclusive of 100 millions for the revenues of industry. Granting her 
to have made some furtjier progress since those estimates were made, and 
that her total revenue in 1813, had advanced to 224 millions, we are told 
by Colquhoun, in his Wealih, Fou'er, and Resources of the British Empire, 
that her public expenditure in that year amounted to 112 millions. By 
this statement it should seem, that her public expenditure then amounted 
to the half of the total expenditure of the nation! Moreover, the expenses 
of her central government do not include all her pubhc charges; there are 
to be added, county and parish rates, poor rates, &,c. &c. The business of 
government might be conducted, even in extensive empires, at a charge of 
not more than one per cent, upon the aggregate of individual revenue; but, 
to attain this degree of perfection, a vast improvement is still requisite in 
the department of practical policy. 



380 ON CONSUMPTION. book m, 

sonal interests; but it must be infinitely more so, that govern- 
ments should possess that knowledge. Economy and order 
are virtues in a private station; but, in a public station, their 
influence upon national happiness is so immense, that one 
hardly knows how sufficiently to extol and honour them in 
the guides and rulers of national conduct. 

An individual is fully sensible of the value of the article he 
is consuming; it has probably cost him a world of labour, per- 
severance, and economy; he can easily balance the satisfaction 
he derives from its consumption against the loss it will in- 
volve. But a government is not so immediately interested in 
regularity and economy, nor does it so soon feel the ill conse- 
quences of the opposite qualities. Besides, private persons 
have a further motive than even self-interest; their feelings 
are concerned; their economy may be a benefit to the objects 
of their affection; whereas, the economy of a ruler accrues to 
the benefit of those he knows very little of; and perhaps he is 
but husbanding for an extravagant and rival successor. 

Nor is this evil remedied, by adopting the principle of he- 
riditary rule. The monarch has little of the feelings common 
to other men in this respect. He is taught to consider the for- 
tune of his descendants as secure, if they have ever so little as- 
surance of the succession. Besides, the far greater part of the 
public consumption is not personally directed by himself; con- 
tracts are not made by himself, but by his generals and minis- 
ters; the experience of the world hitherto, all tends to show, 
that aristocratical republics are more economical, than either 
monarchies or democracies. 

Neither are we to suppose, that the genius, which prompts 
and excites great national undertakings, is incompatible with 
the spirit of public order and economy. The name of Charle- 
magne stands among the foremost in the records of renown; 
he achieved the conquest of Italy, Hungary, and Austria; re- 
pulsed the Saracens; broke the Saxon confederacy; and ob- 
tained at length the honours of the purple. Yet Montesquieu 
has thought it not derogatory to say of him, that "the father 
of a family might take a lesson of good house-keeping from the 
ordinances of Charlemagne. His expenditure was conducted 
with admirable system; he had his demesnes valued with care, 
skill, and minuteness. We find detailed in his capitularies, 
the pure and legitimate sources of his wealth. In a word, such 
was his regularity and thrift, that he gave orders for the eggs 
of his poultry yards, and the surplus vegetables of his garden 
to be brought to market."* The celebrated Prince Eugene, 
who displayed equal talent in negotiation and administration 
as in the field, advised the Ernpevor Charles VI., to take the 
advice of merchants and men of business, in matters of finance.t 

* Esprit des Lois, liv. xxxi. c. 18. 

j Memoires du Frince Eugene par luimeme, p. 187. The authenticity of 
this work has been contested, as well as the Testuuient Folitique of Kiche- 



CHAP. VI. ON CONSUMPTION. 381 

Leopold, when Grand Duke of Tuscany, towards the close of 
the 18th century, gave an eminent example of the resources, 
to be derived from a rigid adherence to the principles of pri- 
vate economy, in the administration of a state of very limited 
extent. In a few years, he made Tuscany one of the most 
flourishing states of Europe. 

The most successful financiers of France, Suger, Abbe de 
St. Dennis, the Cardinal d'Amboise, Sully, Colbert, and Neck- 
er, have all acted on this same principle. All found means of 
carrying into effect the grandest operations by adhering to 
the dictates of private economy. The Abbe de St. Dennis 
furnished the outfit of the second crusade; a scheme, that re- 
quired very large supplies, although one I am far from approv- 
ing. The Cardinal furnished Louis XII. with the means of 
making his conquest of the Milanese. Sully accumulated the 
resources, that afterwards humbled the house of Austria. — 
Colbert supplied the splendid operations of Louis XIV. Neck- 
er provided the ways and means of the only successful war 
waged by France in the iSth century.*' 

Those governments, on the contrary, that have been per- 
petually pressed with the want of money, have been obliged, 
like individuals, to have recourse to the most ruinous, and 
sometimes the most disgraceful, expedients to extricate them- 
selves. Charles the Bald put his titles and safe-conducts up 
to sale. Thus, too, Charles II. of England sold Dunkirk to 
the French king, and took a bribe of 80,000/. from the Dutch, 
to delay the sailing of the English expedition to the East 
Indies, in 1680, intended to protect their settlements in that 
quarter, which, in consequence, fell into the hands of the 
Dutchmen. t Thus, too, have governments committed fre- 
quent acts of bankruptcy, sometimes in the shape of adultera- 
tion of their coin, and sometimes by open breach of their en- 
gagements. 

Louis XIV. towards the close of his reign, having utterly 
exhausted the resources of a noble territory, was reduced to 
the paltry shift of creating the most ridiculous offices, making 
his counsellors of state, one an inspector of fagots, another a 
lincenser of barber-wig-makers, another visiting inspector of 
fresh, or taster of salt, butter, and the like. Such paltry and 
mischievous expedients can never long defer the hour of ca- 
lamities, that must sooner or later befall the extravagant and 

lieu. If not themselves the authors, they must at least have been men of 
equal capacity, of wliich there is still less probability. 

• He contrived to meet the charges of the American war, without the 
imposition of any additional taxes. He has been reproached, indeed, with 
having' incurred heavy loans; but it is obvious, that, so long- as lie found 
means to pay the interest upon them without fresh taxation, they were 
nowise burthensome upon the nation; and that the interest must have been 
defrayed by retrenchment of the expenditure. 

■j" Raynal. Ilistoire des Etah. des Europ. dans les hides, torn. ii. p. 36. 



382 ON CONSUMPTION. book hi. 

spendthrift ,2;overnments. "When aman will not listen to rea- 
son," says Franklin, " she is sure to make herself felt. " 

Fortunately, an economical administration soon repairs the 
mischiefs of one of an opposite character. Sound health can 
not be restored all at once; but there is a gradual and percepti- 
ble improvement: every day some cause of complaint disap- 
pears, and some new faculty comes again into play. Half the re- 
maining resources of a nation, impoverished by an extrava- 
gant administration, are neutralized by alarm and uncertainty; 
whereas, credit* doubles those of a nation, blessed with one 
of a frugal character. It would seem, that there exists in the 
politic, to a stronger degree than even in the natural, body a 
principle of vitality and elasticity, which can not be ex- 
tinguished without the most violent pressure. One can not 
look into the pages of history, without being struck with the 
rapidity, with which this principle has operated. It has no 
where been more strikingly exemplified, than in the frequent 
vicissitudes that our own France has experienced since the 
commencement of the revolution. Prussia has afforded ano- 
ther illustration in our time. The successor of Frederick the 
Great squandered the accumulations of that monarch, which 
were estimated at no less a sum than 228 millions of yr««c*, 
and left behind him besides a debt of 112 millions. In less 
than eight years, Frederick William III. had not only paid oiT 
his father's debts, but actually began a fresh accumulation; 
such is the power of economy, even in a country of limited 
extent and resources! 



SECTION II. 



Of the prinapal Objects of National Expenditure. 

In the preceding section, it has been endeavoured to show, 
that, since all consumption by the public is in itself a sacrifice 
of value, an evil balanced only by such benefit, as may result 
to the community from the satisfaction of any of its wants, a 
good administration will never spend for the mere sake of 

* The expressions, credit is declining, credit is reviving, are common in 
the mouths of the g-enerahty, who are, for the most part, ignorant of the 
precise meaning of credit. It does not imply confidence in the government 
exchisivelv; for the bulk of the community have no concern with govern- 
ment, in respect to their pi'ivate affairs. Neither is it exclusivel}'^ apphed 
to the mutual confidence of individuals; for a person in good repute and 
circumstances, does not forfeit them all at once; and, even in times of gene- 
ral distress, the forfeiture of individual character is by no means so univer- 
sal, as to justify the assertion, that credit is at an end. It would rather 
seem to imply, confidence in future events. The temporary dread of taxa- 



CHAP. VI. ON CONSUMPTION. 383 

spending, but take care to ascertain that the public benefit, 
resulting, in each instance, from the satisfaction of a public 
want, shall exceed the sacrifice incurred in its acquirement. 

A comprehensive view of the principal public wants of a 
civilized community, can alone qualify us to estimate with 
tolerable accuracy the sacrifice it is worth while for the com- 
munity to make for their gratification.* 

The public consumes little else, but what have been de- 
nominated, immaterial products, that is to say, products de- 
stroyed as soon as created; in other words, the services or 
agency, either of human beings, or of other objects, animate 
or inanimate.t 

It consumes the personal service of all its functionaries, ci- 
vil, judicial, military, or ecclesiastical. It consumes the agency 
of land and capital. The navigation of rivers and seas, utility 
of roads and ground open to the public, are so much agency. 
derived by the public from land, of which either the abso- 
lute property, or the beneficial enjoyment, is vested in the 
public. Where capital has been vested in the land, in the 
shape of buildings, bridges, artificial harbours, causeways, 
dikes, canals, &c. the public then consumes the agency, or the 
rent of the land, plus the agency, or the interest, of the capi- 
tal so vested. 

Sometimes the public maintains establishments of produc- 
tive industry; for instance, the porcelain manufacture of Sevres, 
the Gobelin tapestry, the salt works of Lorraine and of the 
Jura, &c. in France. When concerns of this kind bring more 
than their expenditure, which is but rarely the case, they fur- 
nish part of the national revenue, and must by no means be 
classed among the items of national charge. 

tion, arbitrary exaction, or violence, will deter numbers from exposing- their 
persons or their property; undertakings, however promising- and well- 
planned, become too hazardous; new ones are altogether discouraged, old 
ones feel a diminution of profit; merchants contract their operations; and 
consumption in general falls off, in consequence of the decline and the un- 
certainty of individual revenue. There can be no confidence in future 
events, either under an enterprising, ambitious, or unjust government, or 
under one, that is wanting in strength, decision, or method. Credit, like 
ci-ystallization, can only take place in a state of quiescence. 

* A mere sketch is all that can be expected in a work like the present: 
a complete treatise on government would be equally inappropriate with a 
survey of the arts, when it became incidentally necessary to touch upon 
the processes of manufacture. Yet, either would be a valuable addition to 
literary wealth. 

■j" Tiiis rule must be taken with some qualification. The habitual lar- 
gesses of corn, distributed by the emperors to the peo])le of ancient Rome, 
•were material objects of public consimiption. So likewise the provisions 
of all kinds consumed in hospitals and ])risions, and the fireworks used on 
occasions of public display or rejoicing, for the amusement of the people 
at large. 



384 ON CONSUMPTION. bookiii. 



Of the Charge of Civil and Judicial Administration. 

The charge of civil and judicial administration is made up, 
partly of the specific allowances of magistrates and other offi- 
cers,- and partly of such degree of pomp and parade, as may 
be deemed necessary in the execution of their duties. Even 
if the burthen of that pomp and parade be thrown wholly or 
partially upon the public functionary, it must ultimately fall 
upon the shoulders of the public, for the salar}^ of the function- 
ary must be raised, in proportion to the appearance he is ex- 
pected to make. This observation applies to every descrip- 
tion of functionary, from the prince to the constable inclusive; 
consequently, a nation, which reverences its prince only when 
surrounded with the externals of greatness, with guards, horse 
and foot, laced liveries, and such costly trappings of royalty, 
must pay dearly for its taste. If, on the contrary, it can be 
content to respect simplicity rather than pageantry, and obey 
the laws, though unaided by the attributes of pomp and cere- 
mony, it will save in proportion. This is what made the 
charges of government so light in many of the Swiss cantons, 
before the revolution, and in the North American colonies be- 
fore their emancipation. It is well known, that those colonies, 
though under the dominion of England, had separate govern- 
ments, of which they respectively defrayed the charge; yet 
the whole annual expenditure all together amounted to no more 
than 64,700/. sterling, ' An ever memorable example,' ob- 
serves Smith, ' at how small an expense three millions of peo- 
ple may not only be governed, but well governed.'* 

* It should be recollected, however, that they were at no charge of de- 
fence from external attack, except in respect to the savage tribes of the 
interior. 

From the official account of the receipts and disbursements of the United 
States, in the year 1806, presented by Mr. Gallatin, then Secretary of the 
Treasury, it appears that the total expenditure fell short of 12 millions of 
dollars, of which 8 millions went to pay the interest of the public debt; 
leaving a sura of 4 millions only (i. e. somewhat more than 21 millions of 
francs') for the charge of government, that is to say, the civil, judicial, mili- 
tary, and other public functions of a population of 12 millions: which is 
wholly defrayed by taxes on imports, (a) 



(a) This account is exclusive of the local disbursements of the different 
States. The population of the Union, in 1806, v/as never estimated higher 
than 8 millions. The public debt and charges have both advanced very 
rapidly since that period, principally in consequence of the second war with 
Great Britain. The accounts for the year 1820 show a receipt of 22,326^244 
dollars, inclusive of loans and balance of preceding year; and an expenditure 
of 25,064,413 dollars, inclusive of interest on the public debt; exhibiting a 
deficit of $2,638,169. The estimates for 1821, show a receipt of 16,550,000 
dollars, and an expenditure of 21,163,417 dollars, exhibiting a deficit, in- 
clusive of that of 1820, of no less than 7,451,595 dollars, wiiicli has been re- 
duced b}^ retrenchments to 4,658,483 dollars: to meet tills, a loan has been 
again proposed, as the onlj' alternative of a return to internal taxation. If 



CHAr. VI. ON CONSUMPTION. 385 

Causes entirely of a political nature as well as the form of 
government which they help to determine, have an influence 
in apportioning the salaries of public officers, civil and judi- 
cial, the charge of public display, and those likewise of public 
institutions and establishments. Thus, in a despotic govern- 
ment, where the subject holds his property at the will of the 
sovereign, who fixes himself the charge of his household, that 
is to say, the amount of the public money which he chooses to 
spend on his personal necessities and pleasures and the keep- 



America should persist in her views of naval aggrandizement, and in her 
absurd imitation of the errors of the English prohibitive system, and, above 
all, in her attempt to return to a metallic money, she will probably soon 
find her finances still less flourishing' than at present. (1) T. 



(I) [The population of the United States, according to the Census, was 

in 1790 3,929,326 

1800 5,309,326 

1810 7,239,903 

And the following presents, at one view, the amount of the population of 
all the States and Territories, agreeably to the Census of 1820. 

States. 

1 Maine ...... 298,335 

2 New-Hampshire . . . _ . 244,161 

3 Massachusetts ..... 523,287 

4 Rhode Island ..... 83,059 

5 Connecticut ...... 275,248 

6 Vermont ...... 235,764 

7 New York ...... 1,372,812 

8 New Jersey ..... 277,575 

9 Pennsylvania - - . - . . 1,049,458 

10 Delaware ...... 72,749 

11 Maryland ...... 407,350 

12 Virginia ...... 1,065,366 

13 North Carolina ..... 638,829 

14 South Carolina ..... 502,741 

15 Georgia ...... 340,989 

16 Ohio ...... 585,434 

17 Kentucky ...... 564,317 

18 Indiana ...... 148,178 

19 Illinois ...... 55,211 

20 Missouri ...... 66,586 

21 Tennessee ...... 422,813 

22 Mississipi ...... 75,448 

23 Alabama ...... 103,816 

24 Louisiana . . . . . . 153,407 

Terihtoiiies. 

1 District of Columbia ..... 33,039 

2 Michigan ...... 8,896 

3 Arkansas ...... 14,273 

4 Florida ...... 12,000 



9,631,141 
American Editoe. 
56 



386 ON CONSUMPTION. book iii. 

ing up of the royal establishment, that charge will probably 
be fixed at a higher rate, than where it is arranged and con- 
tested between the representatives of the prince and of the 
tax-payers respectively. 

The salaries of inferior public officers in like manner de- 
pend, partly upon their individual importance, and partly upon 
the general plan of government. Their services are dear or 
cheap to the public, not merely in proportion to what they 
actually cost, but likewise in proportion as they are well or ill 
executed, A duty ill performed is dearly bought, however 
little be paid for it; it is dear too, if it be superfluous, or un- 
necessary; resembling in this respect an article of furniture, 
that, if it do not answer its purpose, or be not wanted, is mere- 
ly useless lumber. Of this description, under the old regime 
of France, were the officers of high-admiral, high-steward of 
the household, the king's cup-bearer, the master of his hounds, 
and a variety of others, which added nothing even to the 
splendour of royalty, and were merely so many means of dis- 
pensing personal favour and emolument. 

For the same reason, whenever the offices of government 
are needlessly multiplied, the people are saddled with charges, 
which are not necessary to the maintenance of public order. 
It is only giving an unnecessary form to that benefit, or pro- 
duct, which is not at all the better of it, if indeed it be not 
worse.* A bad government, that can not support its violence, 
injustice, and exaction, without a multitude of mercenaries, sa- 
tellites, and spies, and gaols innumerable, makes its subjects 
pay for its prisons, spies, and soldiers, which nowise contri- 
bute to the public happiness. 

On the other hand, a public duty may be cheap, although 
very liberally paid. A low salary is wholly thrown away 
upon an incapable and inefficient officer; his ignorance will 

Erobably cost the public ten times the amount of his salary; 
ut the knowledge and activity of a man of ability are fully 
equivalent to the pay he receives; the losses he saves to the 
public, and the benefits derived from his exertions, greatly 
outweigh his personal emolument, even if settled on the most 
liberal scale. 

There is real economy in procuring the best of every thing, 
even at a larger price. Merit can seldom be engaged at a low 
rate, because it is applicable to more occupations than one. 
The talent, that makes an able minister, would, in another 
profession, make a good advocate, physician, farmer, or mer- 
chant; and merit will find both employment and emolument 
in all these departments. If the public service ofier no ade- 

* An example occurs to me of a city of France, whose municipal admin- 
istration was both mildly and efficiently conducted before 1789, at a charge 
of 1000 crowns per annum only; but under the Imperial government, though 
it cost 30,000 /r., afforded no security against the caprice and arbitrary will 
of the sovereie-n. 



CHAP. VI. ON CONSUMPTIOiN. 387 

quate reward for its exertion, it will choose some other more 
promising occupation. 

Integrity is like talent; it can not be had without paying for 
it, which is not at all wonderful; for the honest man can not 
resort to those discreditable shifts and contrivances, which dis- 
honesty looks to as a supplemental resource. 

The power, which commonly accompanies the exercise of 
public functions, is a kind of salary, that often far exceeds the 
pecuniary emolument attached to them. It is true, that, in a 
well ordered state, where law is supreme, and little is left to 
the arbitrary control of the ruler, there is little opportunity of 
indulging the caprice and love of domination implanted in the 
human breast. Yet the discretion, which the law must inevi- 
tably vest in those who are to enforce it, and particularly in 
the ministerial department, together with the honour common- 
ly attendant on the higher offices of the state, have a real va- 
lue, which makes them eagerly sought after, even in countries 
where they are by no means lucrative. 

The rules of strict economy would probably make it advisa- 
ble to abridge all pecuniary allowance, wherever there are 
other sufficient attractions to excite a competition for office, 
and to confer it on none but the wealthy, were there not a 
risk of losing, by the incapacity of the officer, more than 
would be gained by the abridgment of his salary. This, as 
Plato well observes in his Republic, would be like entrusting 
the helm to the richest man on board. Besides, there is some 
danger, that a man, who gives his services for nothing, will 
make his authority a matter of gain, however rich he may be. 
The wealth of a public functionary is no security against his 
venality: for ample fortune is commonly accompanied with 
desires as ample, and probably even more ample, especially if 
he have to keep up an appearance, both as a man of wealth 
and as a magistrate. Moreover, supposing what is not alto- 
gether impossible, namely, that one can meet with wealth 
united with probity, and with, besides, the activity requisite 
to the due performance of public duty, is it wise to run the 
risk of adding the preponderance of authority to that of wealth, 
which is already but too manifest? With what grace could his 
employers call to account an agent, who could assume the 
merit of generosity, both with the people and with the govern- 
ment? There are, however, some ways, in which the gratui- 
tous services of the rich may be employed with advantage; 
particularly in those departments, that confer more honour 
than power: as in the administration of institutions of public 
charity, or of public coi-rection or punishment. 

In France under the old reghne, the government, when 
harassed with the want of money, was in the habit of putting 
up its offices to sale. This is the very worst of all expedients: 
it introduces all the mischiefs of gratuitous service; for the 
emolument is then no more, than the interest of the capital 
expended in the purchase of the office; and has the additional 



388 ON CONSUMPTION. book m. 

evil of costing to the state as much, as if the service were not 
gratuitously performed; for the public remains charged with 
the interest of a capital, that has been consumed and lost. 

It has been sometimes the practice to consign certain civil 
functions, such as the registry of births, marriages, and deaths, 
to the ecclesiastical body, whose emoluments, arising from 
their clerical duties, may be supposed to enable them to exe- 
cute these without pay. But there is always danger in con- 
fiding the execution of civil duties to a class of men, that pre- 
tend to a commission from a still higher than the national au- 
thority. * 

In spite of every precaution, the public or the monarch will 
never be served so well or so cheaply as individuals. In- 
ferior public agents can not be so narrowly watched by their 
superiors, as private ones; nor have the superiors themselves 
an equal interest in vigilant superintendence. Besides, it is 
easy enough for underlings to impose on a superior, who has 
many to look after, is perhaps placed at a distance, and can 
give but little attention to each individually; and whose vanity 
makes him more alive to the officious zeal of his inferior, than 
to the real service and utility, that the public good requires. 
As to the monarch and the nation, who are the parties most 
interested in good public administration, because it consoli- 
dates the power of the one and enlarges the happiness of the 
other, it is next to impossible for them to exert a perpetual and 
effectual control. In most cases, this duty must of necessity 
devolve on agents, who will deceive them when it is their in- 
terest to do so, as is proved by abundance of examples. " Pub- 
lic services," says Smith, "are never better performed, than 
when their reward comes only in consequence of their being 
performed, and is proportioned to the diligence employed in 
performing them." Accordingly, he recommends, that the 
salaries of judges should be paid at the final determination of 
each suit, and the share of each judge proportioned to their 
respective trouble in the progress of it. This would be some 
encouragement to the diligence of each particular judge, as 
well as to that of the court, in bringing litigation to an end. 

* Several times during the last century the Molinist priesthood refused 
to execute their clerical duties in favour of the Jansenists, in spite of all 
the government could do; on tlie pretence, that it was better to obey the 
divine command as conveyed by the voice of the Pope, than that of any 
human authority, (a) 



(a) This inconvenience can arise only in countries, where there is an ex- 
clusive national clmrch, subjected, in matters of doctrine and discipline, to 
an independent or external superior: as in countries embracing the faith of 
Rome. But there is another inconvenience, that has been mucli dwelt upon 
by an eminent divine of the Scottish church; viz. the inconvenience of di- 
recting the attention of the priesthood from its clerical to civil functions, 
and, by a confusion of such different duties, abridging the benefit of divi- 
sion of labour. T. 



CHAP. VI. ON CONSUMPTION. 3S9 

There would be some difficulty in applying this method to all 
the branches of the public service; and it would probably in- 
troduce as great abuses in the opposite way; but it would at 
least be productive of one good; viz. preventing the needless 
multiplication of offices. It would likewise give the public 
the same advantage of competition, as enjoyed by individuals, 
in respect to the services they call for. 

Not only are the time and labour of public men in general 
better paid for than those of other persons, besides being often 
wasted by their own mismanagement, without the possibility 
of an efficient check; but there is often a further enormous 
waste, occasioned by compliance with the customs of the coun- 
try, and court etiquette. It would be curious to calculate the 
time wasted in the toilet, or to estimate, if possible, the many 
dearly-paid hours lost, in the course of the last century, on 
the road between Paris and Versailles. 

Thus, in the governments of Asia, there is an immense 
waste of the time of the superior public servants in tedious 
and ceremonious observances. The monarch, after allowing 
for the hours of customary parade, and those of personal plea- 
sure, has little time left to look after his own affairs, which, 
consequently, soon go to ruin. Frederick II. of Prussia, by 
adopting a contrary line of conduct, and by the judicious dis- 
tribution and apportionment of his time, contrived to get 
through a great deal of business himself. By this means, he 
really lived longer than older men than himself, and succeed- 
ed in raising his kingdom to a first rate power. His other 
great qualities, doubtless, contributed to his success; but they 
would not have been sufficient, without a methodical arrange- 
ment of his time. 

Of Charges, Military and Naval. 

When a nation has made any considerable progress in com- 
merce, manufacture, and the arts, and its products have, con- 
sequently, become various and abundant, it would be an im- 
mense inconvenience, if every citizen were liable to be drag- 
ged from a productive employment, which has become neces- 
sary to society, for the purposes of national defence. The 
cultivator of the soil works no longer for the sustenance of 
himself and family only, but also for that of many other fami- 
lies, who are either owners of the soil, and share in its pro-^ 
duce, or traders and manufacturers, that supply him with ar- 
ticles he can not do without. He must, therefore, cultivate a 
larger extent of surface, must vary his tillage, keep a larger 
stock of cattle, and follow a complex mode of cultivation, that 
will fully occupy his leisure between seed-time and harvest.*" 

* The Greeks, until the second Persian war, and the Romans, until the 
siege of Veii, regularly made their military campaigns in that interval. Na^ 
tions of hunters or shepherds, that pay little attention to the arts, and none 



390 ON CONSUMPTION. book iii. 

Still less can the trader and manufacturer afford thus to sa- 
crifice time and talents, whereof the constant occupation, ex- 
cejDt (luring the intervals of rest, is necessary to the produc- 
tion, from which they are to derive their suhsistence. 

The ovi'ners of land let out to farm may, undoubtedly, serve 
as soldiers without pay; as, indeed, the nobility and gentry do, 
in some measure, in monarchical states; but they are, for the 
most part, so much accustomed to the sweets of social existence, 
so little goaded by necessity towards the conception and 
achievement of great enterprises, and feel so little of the en- 
thusiasm of emulation and esprit de corps, that they common- 
ly prefer a pecuniary sacrifice, to that of comfort, and possi- 
bly of life. And these motives operate equally with the own- 
ers of capital. 

All these reasons have led individuals, in most modern 
states, to consent to a taxation, that may enable the monarch 
or the republic to defend the country against external violence 
with a hired and professional soldiery, who are, however, too 
apt to become the tools of their leader's ambition or tyranny. 

When war has become a trade, it benefits, like all other 
trades, from the division of labour. Every branch of human 
science is pressed into its service. Distinction or excellence, 
whether in the capacity of general, engineer, subaltern, or 
even private soldier, can not be attained without long training, 
perhaps, and constant practice. The nation, which should 
act upon a different principle, would lie under the disadvan- 
tage of opposing the imperfection, to the perfection, of art. 
Thus, excepting the cases, in which the enthusiasm of a whole 
nation has been roused to action, the advantage has uniformly 
been on the sideof a disciplined and professional soldiery.- 
The Turks, although professing the utmost contempt for the 
arts of their Christian neighbours, are compelled by the dread 
of extermination to be their scholars in the art of war. The 
European powers were all forced to adopt the military tactics 
of the Prussians; and, when the violent agitation of the French 
revolution pressed every resource of science to the aid of the 
armies of the republic, the enemies of France were obliged to 
follow the example. 

This extensive application of science, and adaptation of 
fresh means and more ample resources to military purposes, 
have made war far more expensive now than in former times. 
It is necessary now-a-days, to provide an army beforehand, 
with supplies of arms, ammunition, magazines of provision, 
ox'dnance, &c. , equal to the consumption of one campaign at the 
least. The invention of gun-powder has introduced the use of 
weapons more complex and expensive, and very chargeable in 

to agriculture, like the Tartars and Arabs, are less circumscribed in time, 
and can prosecute their warlike enterprises in any quarter, that promises 
booty, and furnishes pasturage. Hence the vast area of the conquests of 
Attila, Genghis-Khan, and Tamerlane, and of the Moors and the Turks, 



CHAP. VI. ON CONSUMPTION. 391 

the transport, especially the field and battering trains. More- 
over, the wonderful improvement of naval tactics, the variety 
of vessels of every class and construction, all requiring the 
utmost exertion of human genius and industry; the yards, 
docks, machinery, store-houses, &c. have entailed upon na- 
tions addicted to war almost as heavy an expense in peace, as 
in times of actual hostility; and obliged them not only to ex- 
pend a great portion of their income, but to vest a great amount 
of capital likewise, in military establishments. In addition to 
all which, it is to be observed, that the modern colonial S3^s- 
tem, that is to say, the system of retaining the sovereignty of 
towns and provinces in distant parts of the world, has made 
the European states open to attack and aggression in the most 
remote quarters of the globe, and the whole world the theatre 
of warfare, when any of the leading powers are the bellige- 
rents.* 

Wealth has, consequently, become as indispensable as valour 
to the prosecution of modern warfare; and a poor nation can 
no longer withstand a rich one. Wherefore, since wealth can 
be acquired only by industry and frugality, it may safely be 
predicted, that every nation, whose agriculture, manufacture 
and commerce, shall be ruined by bad government, or exorbi- 
tant taxation, must infallibly fall under the yoke of its more 
provident neighbours. We may further conclude, that hence- 
forward national strength will accompany national science and 
civilization; for none but civilized nations can maintain con- 
siderable standing armies; so that there is no reason to appre- 
hend the future recurrence of those sudden overthrows of civ- 
ilized empires by the influx of barbarous tribes, of which his- 
tory affords many examples. 

War costs a nation more than its actual expense; it costs, be- 
sides, all that would have been gained, but for its occurrence. 

When Louis XIV. in 1672, resolved, in a fit of passion, to 
chastise the Dutch for the insolence of their newspaper writers, 
Boreel, the Dutch ambassador, laid before him a memorial, 
showing that France, through the medium of Holland, sold 
produce annually to foreign nations, to the amount of sixty 
millions fr. at the then scale of price; which will fall little 
short of 120 millions at the present. But the court treated his 
representations as the mere empty bravado of an ambassador. 

To conclude: the charges of war would be very incorrectly 
estimated, were we to take no account of the havoc and de- 
struction it occasions; for that one at least of the belligerents, 
whose territory happens to be the scene of operations, must be 
exposed to its ravages. The more industrious the nation, the 
more does it suffer from warfare. When it penetrates into a 

* It has been calculated that every soldier, brought into the field by- 
Great Britain, during- her last war with America, cost her twice as much as 
one on the continent of Europe. And the other charges of warfare must of 
course be aggravated by the distance in an equal ratio. 



392 ON CONSUMPTION. book hi. 

district abounding in agricultural, manufacturing and commer- 
cial establishments, it is like a fire in a place full of combusti- 
bles; its fury is aggravated, and the devastation prodigious. 
Smith calls the soldier an unproductive labourer; would to God 
he were nothing more, and not a destructive one into the bar- 
gain! he not only adds no product of his own («) to the gene- 
ral stock of wealth, in return for the necessary subsistence he 
consumes, but is often set to work to destroy the fruits of other 
people's labour and toil, without doing himself any benefit. 

The tardy, but irresistible expansion of intelligence will pro- 
bably operate a still further change in external political rela- 
tions, and with it a prodigious saving of expenditure for the 
purposes of war. Nations will be taught to know that they 
have really no interest in fighting one another; that they are 
sure to suffer all the calamities incident to defeat, while the 
advantages of success are altogether illusory. According to the 
international policy of the present day, the vanquished are 
sure to be taxed by the victor, and the victor by domestic au- 
thority: for the interest of loans must be raised by taxation. 
There is no instance on record, of any diminution of national 
expenditure being effected by the most successful issue of hos- 
tilities. And, what is the glory it can confer more than a mere 
toy of the most extravagant price, that can never even amuse 
rational minds for any length of time? Dominion by land or sea 
will appear equally destitute of attraction, when it comes to be 
generally understood, that all its advantages rest with the 
rulers, and that the subjects at large derive no benefit what- 
ever. To private individuals, the greatest possible benefit is 
entire freedom of intercourse, which can hardly be enjojred 
except in peace. Nature prompts nations to mutual amity; 
and, if their governments take upon themselves to interrupt it, 
and engage them in hostility, they are equally inimical to their 
own people, and to those they war against. If their subjects 
are weak enough to second the ruinous vanity or ambition of 
their rulers in this propensity, I know not how to distinguish 
such egregious folly and absurdity, from that of the brutes 
that are trained to fight and tear each other to pieces, for the 
mere amusement of their savage masters. 

But human intelligence will not stand still; the same impulse 
that has hitherto borne it onwards, will continue to advance it 
yet further.* The very circumstance of the vast increase of 

• Those who deny the progessive influence of human reason, must have 
studied history to very httle purpose. The perfldy and cruelty of war has 
considerably abated, in Europe, more than in Asia or America, and most of 



(a) This is too generally expressed. Where security from external attack 
is only to be had by means of a professional soldiery, the soldier is a pro- 
ductive agent, — productive of the immaterial product, security from exter- 
nal attack, than which, under certain circumstances, none can be more valu- 
able. T. 



CHAP. VI. ON CONSUMPTION. 393 

expense attending national warfare has made it impossible for 
governments henceforth to engage in it, without the public 
assent, express or implied; and that assent will be obtained 
with the more difficulty, in proportion as the public shall be- 
come more generally acquainted with their real interest. The 
national military establishment will be reduced to what is bare- 
ly sufficient to repel external attack; for which purpose little 
more is necessary, than a small body of such kinds of troops, 
as can not be had without long training and exercise; as of ca- 
valry and artillery. For the rest, nations will rely on their 
militia, and on the excellence of their internal polity: for it is 
next to impossible to conquer a people, unanimous in their 
attachment to their national institutions; and their attachment 
will always be proportionate to the loss they will incur by a 
change of domination.* 

Of the Charges of public Instruction. 

Two questions have been raised in Political Economy; 1. 
whether the public be interested in the cultivation of science 
in all its branches? 2. whether it be necessary, that the public 
should be at the expense of teaching those branches, it has an 
interest in cultivating? 

Whatever be the position of man in society, he is in constant 
dependence upon the three kingdoms of nature. His food, 
his clothing, his medicines, every object either of business or 
of pleasure, is subject to fixed laws; and the better those laws 
are understood, the more benefit will accrue to society. Every 
individual, from the common mechanic, that works in wood 
or clay, to the prime minister that regulates with a dash of his 
pen the agriculture, the breeding of cattle, the mining, or the 
commerce of a nation, will perform his business the better, the 
better he understands the nature of things, and the more his 
understanding is enlightened. 

For this reason, every advance of science is followed by an 
increase of social happiness. A new application of the lever, 
or of the power of wind or water, or even a method of reduc- 
ing the friction of bodies, will, perhaps, have an influence on 
twenty difierent arts. An uniformity of weights and mea- 
sures, arranged upon mathematical principles, would be a 

all amongst the most polished of the European nations. The ungenerous 
character of some recent military enterprises roused so much public indig- 
nation, as to make them recoil upon the projectors with ruinous violence. 

* I am here speaking of the only sure reliance in an enlightened age. 
A people, that has nothing to lose by a change of domination, may defend 
itself with the most determined gallantry. The Moosulman will rush on 
certain destruction, in the cause of a prince and a faith, that are neither 
of them worth defending. Bat political and religious prejudice will sooner 
or later fall to the ground; and leave mankind to seek for some more rea- 
sonable object of devotion. 
57 



394 ON CONSUMPTION. book hi. 

benefit to the whole commercial world, if it were wise enough 
to adopt such an expedient. An irnportant discovery in as- 
tronomy or geology may possibly afford the means of ascer- 
taining the longitude at sea with precision; which would be an 
immense advantage to navigation all over the world. The 
naturalization in Europe of a new botanical genus or species 
might possibly influence the comfort of many millions of in- 
dividuals.* 

Among the numerous classes of science, theoretical and 
practical, which it is the interest of the public to advance and 
promote, there are fortunately many, that individuals have a 
personal interest in pursuing, and which the public, therefore, 
IS not called upon to pay the expense of teaching. Every ad- 
venturer in any branch of industry is urged most strongly by 
self-interest to learn his business and whatever concerns it: 
the journeyman gains in his apprenticeship, besides manual 
dexterity, a variety of notions and ideas only to be learnt in 
the work-shop, and which can be no otherwise recompensed, 
than by the wages he will receive. 

But it is not every degree or class of knowledge, that yields 
a benefit to the individual, equivalent to that accruing to the 

?ublic. In treating abovet of the profits of the man of science, 
have shown the reason, why his talents are not adequately 
remunerated; yet theoretical is quite as useful to society as 
practical knowledge; for how could science ever be applied to 
the practical utility of mankind, unless it were discovered and 
preserved by the theorist? It would rapidly degenerate into 
mere mechanical habit, which must soon decline; and the 
downfal of the arts would pave the way for the return of ig- 
norance and barbarism. 

In every country that can at all appreciate the benefits to be 
derived from the enlargement of human faculties, it has been 
deemed by no means a piece of extravagance, to support acade- 
mies and learned institutions, and a limited number of very 
superior schools, intended not as mere repositories of science, 
and of the most approved modes of instruction, but as a means 
of its still further extension. But it requires some skill in the 
management, to prevent such establishments from operating 
as an impediment, instead of a furtherance, to the progress of 
knowledge, and as an obstruction rather than as an avenue to 
the improvement of education. Long before the revolution, it 
had become notorious, that most of our French universities had 
been thus perverted from the intention of their founders. All 

* Should the expected success attend the attempt to naturalize in Europe 
the flax of New-Zealand, which is greatly superior to that of Europe in the 
length and delicacy of the fibre, as well as in the abundance of the crop, it 
is possible that fine linen may be produced at the rate now paid for the 
coarsest quality; which would greatly improve the cleanliness and health of 
the lower classes. 

f Book II. chap. 7, sect. 2. 



CHAP. VI. ON CONSUMPTION. 395 

the principal discoveries were made elsewhere; and most of 
them had to encounter the weight of their influence over the 
rising generation and credit with men in power.*(l) 

From this example, we may see how dangerous it is, to en- 
trust them with any discretionary control. If a candidate pre- 
sents himself for examination, he must not be referred to 
teachers, who are at the same time judges and interested par- 
ties, sure to think well of their own scholars, and ill of those 
of every body else. The merit of the candidate should alone 
decide, and not the place where he happens to have studied, 
nor the length of his probation; for to oblige a student in any 
science, medicine for instance, to learn it at a particular place, 
is, possibly, to prevent his learning it better elsewhere; and, 
to prescribe any fixed routine of study, is, possibly, to prevent 
his fixing a shorter road. Moreover, in deciding upon com- 
parative merit, there is much unfairness to be apprehended 
from the esprit de corps of such communities. 

Encouragement may, with perfect safety, be held out to a 
mode of instruction of no small efficacy; I mean, the composi- 

* What was denominattd an University, under the reig-n of Napoleon, 
was a still more miscliievous institution; being-, in fact, but a most expen- 
sive and vexatious contrivance, for depraving- the intellectual faculties of the 
rising- g-eneration, by substituting-, in tiie place of just and correct notions 
of things, opinions calculated to perpetuate the political slavery of their 
country. 



(1) ["It is chiefly," observes Dtjgai-d Stewart, "in judg-ing- of ques- 
tions coming home to their business and bosoms, that casual associations 
lead mankind astray; and of such associations, how incalculable is the num- 
ber arising from false systems of religion, oppressive forms of government, 
and absiu'd plans of education! The consequence is, that wliile the physi- 
cal and mathematical discoveries of fornter ages present themselves to the 
hand of the historian, like masses of pure and native gold, thetrutlis which 
we are here in quest of may be compared to iron, which, althoiigh at once 
the most necessary and the most widely diffused of all the metals, common- 
ly requires a discriminating eye to detect its existence, and a tedious as 
well as nice process, to extract it from the ore." 

" To the same circumstance it is owing, that improvements in Moral and 
in Political Science do not strike the imagination with nearly so great force 
as the discoveries of the Mathematician or of the Chemist. When an inve- 
terate prejudice is destroyed by extirpating the cas-aal associations on which 
it was grafted, how powerful is the new impulse given to the intellectual 
faculties of man! Yet how slow and silent the process by which the effect 
is accomplished! Were it not, indeed, for a certain class of learned authors, 
who, from time to time, heave the log into the deep, we should hardly be- 
lieve that the reason of the species is progressive. In this respect, the re- 
ligious and academical establishments in some parts of Europe are not with- 
out their use to the historian of the human mind. Immoveably moored to 
the same station by the strength of their cables, and the weight of their 
anchors, they enable him to measure the rapidity of the current by which 
the rest of the world are borne along." 

Vidt Preface to Stewart's Dissertations, p. 28, Boston edition.'^ 

Ameuican Editoh. 



396 ON CONSUMPTION, book iir. 

tion of good elementary* works. The reputation and profit 
of a good book in this class do not indemnify the labour, sci- 
ence, and skill, requisite to its composition. («) A man must 
be a fool to serve the public in this line where the natural pro- 
fit is so little proportioned to the benefit derived to the public. 
The want of good elementary books will never be thoroughly 
supplied, until the public shall hold out temptations, sufficient- 
ly ample to engage first-rate talents in their composition. It 
does not answer to employ particular individuals for the ex- 
press purpose; for the man of most talent will not always suc- 
ceed the best: nor to offer specific premiums; for they are often 
bestowed on very imperfect productions, and the encourage- 
ment ceases the moment the premium is awarded. But merit 
in this kind should be paid proportionately to its degree, and 
always liberally. A good work will thus be sure to be super- 
seded by a better, till perfection is at last attained in each class. 
And I must observe, by the way, that there is no great expense 
incurred by liberally rewarding excellence; for it must always 
be extremely rare; and, what is a great sum to an individual, 
is a small matter to the pockets of a nation. 

These are the kinds of instruction most calculated to promote 
national wealth, and most likely to retrograde, if not in some 
measure supported by the public. There are others, which 
are essential to the softening of national manners, and stand 
yet more in need of that support. 

When the useful arts have arrived at a high degree of per- 
fection, and labour has been very generally and minutely sub- 
divided, the occupation of the lowest classes of labourers is 
reduced to one or two operations, for the most part simple in 
themselves, and continuallv repeated: to these their whole 
thought and attention are directed; and from them they are 
seldom diverted by any novel or unforeseen occurrence: their 
intellectual faculties, being rarely or never called into play, 
must of course be degraded and brutified, and themselves ren- 
dered incapable of uttering two words of common sense out of 
their peculiar line of business, and utterly devoid of any gene- 
rous ideas or elevated notions. Elevation of mind is generated 
bj'' enlarged views of men and things, and can never exist in 
a being incapable of conceiving the general bearings and con- 

* Under this head, I would include, the fundamental parts of knowledg-e 
in every department, and the familiar instruction adapted to each specific 
calling, respectively; such as would impart at a cheap rate to the hatter, the 
metal-founder, the potter, the dyer, &c. the general principles of their re- 
spective arts. Works of this kind keep up a constant channel of communi- 
cation between the practical and theoretical branches, and enable them to 
profit mutually by each other's experience. 



(a) This can only be true where the demand for such works is limited. 
In England, works of instruction are probably amongst the most profitable 
to the authors. T. 



CHAP. VI. ON CONSUMPTION. 397 

nexions of objects. A plodding-mechanic can conceive no 
connection between the inviolability of property and public 
prosperity, or how he can be more interested in that prosper- 
ity, than his more wealthy neighbour; but is apt to consider all 
these capital benefits as so many encroachments on his rights 
and happiness. ■ A certain degree of education, of reading, of 
reflection while at work, and of intercourse with persons of 
his own condition, will open his mind to these conceptions, 
as well as introduce a little more delicacy of feeling into his 
conduct, as a father, a husband, a brother, or a citizen. 

But, in the vast machinery of national production, the mere 
manual labourer is so placed, as to earn little or nothing more 
than a bare subsistence. The most he can do is, to rear his 
young family, and bring them up to some occupation: he can 
not be expected to give them that education, which we have 
supposed the well-being of society to require. If the commu- 
nity wish to have the benefit of more knowledge and intelli- 
gence in the labouring classes, it must dispense it at the pub- 
lic charge. 

This object may be obtained by the establishment of primary 
schools, of reading, writing, and arithmetic. These are the 
groundwork of all knowledge, and are quite sufficient for the 
civilization of the lower classes. In fact, one can not call a 
nation civilized, nor, consequently, possessed of the benefits 
of civilization, until the people at large be instructed in these 
three particulars: till then it will be but partially reclaimed 
from barbarism. With the help of these advantages alone, it 
may safely be affirmed, that no transcendant genius or supe- 
rior mind will long remain in obscurity, or be prevented from 
displaying itself to the infinite benefit of the community. The 
faculty of reading alone will, for a few sous, put a man in pos- 
session of all that eminent men have said or done in the line, 
to which the bent of genius impels. Nor should the female 
part of the creation be shut out from this elementary educa- 
tion; for the public is equally interested in their civilization; 
and they are indeed the first, and often the only teachers of 
the rising generation. 

It would be the more unpardonable in governments to ne- 
glect the business of education, and abandon to their present 
ignorance the great majority of the population in those na- 
tions of Europe, that pretend to the character of refinement 
and civilization, now that the improved methods of mutual in- 
struction, that have been tried with such complete success, af- 
ford a ready and most economical means of universally dijETus- 
ing knowledge amongst the inferior classes.* 

* According to the new method, introduced by Lancaster, and perfected 
by subsequent teachers, a single master with very httle aid of books, pens, 
or paper, can rapidly and effectually teach reading, writing, and vulgar 
arithmetic, to five or six hundred scholars at a time. This truly economi- 
cal result is produced, by taking advantage of the slightest superiority of 



398 ON CONSUMPTION. book hi. 

Thus, none but elementary and abstract science, — ^the high- 
est and the lowest branches of knowledge, are so much less 
favoured in the natural course of things, and so little stimulated 
by the competition of demand, as to require the aid of that au- 
thority, which is created purposely to watch over the public 
interests. Not that individuals have no interest in the support 
and promotion of these, as well as of the other, brancnes of 
knowledge; but they have not so direct an interest, — the loss 
occasioned by their disappearance is neither so immediate nor 
so perceptible; a flourishing empire might retrograde, until it 
reached the confines of barbarism, before individuals had ob- 
served the operating cause of its decline. 

I would not be understood to find fault with public establish- 
ments for purposes of education, in other branches than those 
I have been describing. I am only endeavouring to show, in 
what branches a nation may wisely, and with due regard to its 
own interest, defray the charge out of the public purse. Every 
diffusion of such knowledge, as is founded upon fact and ex- 
perience, and does not proceed upon dogmatical opinions and 
assertions, every kind of instruction, that tends to improve 
the taste and understanding, is a positive good; and, conse- 
quently, an institution calculated to diffuse it must be benefi- 
cial. But care must be taken, that encouragement of one 
branch shall not operate to discourage another. This is the 
general mischief of premiums awarded by the public; a pri- 
vate teacher or institution will not be adequately paid, where 
the same kind of instruction is to be had for nothing, though 
perhaps, from inferior teachers. There is, therefore, some 
danger, that talent may be superseded by mediocrity; and a 
check be given to private exertions, from which the resources 
of the state might expect incalculable benefit. 

The only important science, which seems to me not suscep- 

inlellig'ence of one above another, and directing- the motive of emulation, 
natural to the human breast, tovi^ards an useful object. A larg^e school is 
commonly divided into forms, consisting- each of eight cliildren, as nearly 
equal in advancement as possible, and instructed by a child somewhat more 
advanced, called The Monitor, These forms again are divided into eight 
classes; of which the lowest learns to pronounce the letters of the alphabet, 
and to trace their figures rudely with the finger upon sand spread out upon 
a flat board; and the highest is able to write on paper, and to practise the 
four rules of arithmetic. The children of each form are ranged according 
to their progress; and whoever can not give the answer, is immediately su- 
perseded by a more apt scholar. As soon as a child is perfected in one 
class, he is transferred to the next in degree. The lessons are received, 
sometimes in a sitting posture, and sometimes upright, with slates affixed to 
the walls. The instruction is thus always accommodated to the age and 
faculties of the child; it necessaril}' arrests and rewards his attention; and 
involves that personal activity, essential to the infant frame. The whole is 
conducted in a single apartment, and usually under the superintendence 
of a single master or mistress. The general adoption of this method will 
probably be for some time opposed by custom and prejudice; but its utility 
and conformity to the order of nature will ensure its ultimate and universal 
prevalence. 



CHAP. VI. ON CONSUMPTION. 399 

tible of being taught at the public charge, is that of Moral Phi- 
losophy, which may be considered as either experimental or 
doctrinal. The former consists in the knowledge of moral 
qualities, and of the chain of connection between events de- 
pendent upon human will; and forms indeed a part of the study 
of man, which is best pursued by social converse and inter- 
course. The latter is a series of maxims and precepts, pos- 
sessing very little influence upon human conduct, which is 
best guided in the relations of public and of private life, by 
the operation of good laws, of good education, and of good 
example.* 

The sole encouragement to virtue and good conduct, that 
can be relied on, is, the interest that every body has in dis- 
covering and employing no persons but those of good charac- 
ter. Men the most independent in their circumstances want 
something more to make them happy; that is to say, the ge- 
neral esteem and good opinion of their fellow-creatures: and 
these can only be acquired by putting on the appearance at 
least of estimable qualities, which it is much easier to acquire 
than to stimulate. The influence of the sovereign or ruling 
body, upon the manners of the nation, is very extensive, be- 
cause it employs a vast number of people; but it operates less 
beneficially than that of individuals, because it is less interest- 
ed in employing none but persons of integrity. If to its luke- 
warm ness in this particular be added, the example of immo- 
rality and contempt far honesty and economy too frequently 
held out to the people by their rulers, the corruption of nation- 
al morals will be wonderfully accelerated, t But a nation may 
be rescued from moral degradation by the re-action of oppo- 
site causes. Colonies are, for the most part, composed of by 
no means the most estimable classes of the mother-country: 
in a very short time, however, when the hopes of return are 
wholly abandoned, and the settlers have made up their minds 
to pass the rest of their lives in their new abode, they gradual- 
ly feel the necessity of conciliating the esteem of their fellow- 
citizens, and the morals of the colony improve rapidly. By 
morals, I mean, the general course of human conduct and be- 
haviour. 



* I am strongly disposed to say the same of logic. Were nothingtaiight, 
but what is consistent with truth and good sense, logic would follow of it- 
self as a matter of course: all the teaching in the world will never make a 
man a good reasoner, whose notions and ideas of things are unsound and 
erroneous; and, with the foundation of just notions, he will require no 
teaching to make him reason well. Just ideas of things are only to be ac- 
quired by attentive examination; by taking account of every particular 
concerning them, and of nothing but what concerns them; which is the 
object of all knowledge in general, and by no means of logic alone. 

f The bad example of a vicious prince is of the most fatal tendenc}'; it is 
notorious to all the world, and protected and abetted by public authority: 
and it is sure to be reflected by tlie subservience of courtiers to the ex- 
treme poiut of imitative servility. 



400 ON CONSUMPTION. book m. 

These are the causes, that have a positive influence upon 
national morality. To these must be added, the effect of edu- 
cation in general, in opening the eyes of mankind to their real 
interests, and softening the temper and disposition. 

Religious instruction ought, strictly speaking, to be defray- 
ed by the respective religious communions and societies, each 
of which regards the opinions of the rest as heretical, and na- 
turally revolts at the injustice of contributing to the propaga- 
tion of what it deems erroneous, if not criminal, (a) 

Of the Charges 0/ Public Benevolent Institutions. 

It has been much debated, whether individual distress has 
any title to public relief. I should say none, except inasmuch 
as it is an unavoidable consequence of existing social institu- 
tions. If infirmity and want be the effect of the social sys- 
tem, they have a title to public relief; provided always, that it 
be shown, that the same system affords no means of preven- 
tion or cure. But it would be foreign to the matter to discuss 
the question of right in this place. All we need do is, to con- 
sider benevolent institutions with regard to their nature and 
consequences. 

When a community establishes at the public charge any in- 
stitution for benevolent purposes, it forms a kind of saving- 
bank, to which every member contributes a proportion of his 
revenue, to entitle him to claim a benefit, in the event of ac- 
cident or misfortune. The wealthy are generally impressed 
with an idea, that they shall never stand in need of public 
charitable relief; but a little less confidence would become them 
better. No man can reckon in his own case upon the con- 
tinuance of good fortune, with as much certainty as upon the 
permanence of his wants and infirmities: the former may de- 
sert him; but the latter are inseparable companions. It is 
enough to know, that good fortune is not inexhaustible, to in- 
fuse an apprehension, that it may some day or other be ex- 
hausted: one has but to look round, and this apprehension will 
be confirmed by the experience of numbers, whose misfortunes 
were to themselves quite unexpected. 



(a) These considerations would lead to the much agitated question, of 
the justice and expediency of a national church, which it would be tedious 
to enlarge upon. Suffice it to say, that, in like manner as the improving 
morality of a nation makes the duties of civil government gradually less 
voluminous and requisite; so its improving knowledge renders the lessons 
of the pulpit less efficacious and less necessary. Wherefore, it should 
seem, that the clerical body, being thus eased of great part of their laboui's, 
should be made available to the state for other purposes; as for that of dif- 
fusing and perpetuating primary instruction, and the like; or should be 
reduced in numbers and emolument, in proportion to the reduction of 
their utility. For a national church, as before observed, is a mere civil in- 
stitution. T. 



CHAP. VI. ON CONSUMPTION. 401 

Hospitals for the sick, alms-houses, and asylums for old age 
and infancy, inasmuch as they partially relieve the poorer 
classes from the charge of maintaining those, who are natural- 
ly dependent on them, and thereby allow population to ad- 
vance somewhat more rapidly, have a natural tendency a little 
to depress the wages of labour. That depression would be 
greater still, if such establishments should be so multiplied, as 
to take in all the sick, aged, and infants of those classes, who 
would then have none but themselves to provide for out of 
their wages. If they were entirely done away, there would 
be some rise of wages, although not sufficient to maintain so 
large a labouring population, as may be kept up with their 
help; for the demand for their labour would be somewhat re- 
duced by the advance of its price. 

From these two extreme suppositions, we may judge of the 
effect of those effijrts to relieve indigence, which all nations 
have made in some degree or other; and see the reason, why 
the distress and relief go on increasing together, although not 
exactly in the same ratio. 

Most nations preserve a middle course between the two ex- 
tremes, affording public relief to a part only of those, who are 
helpless from age, infancy, or casual sickness. Of the rest 
they endeavour to rid themselves in one of two ways; either 
by requiring certain qualifications in the applicants, whether 
CI age, of specific disease, or, perhaps, of mere interest and 
favouritism; or by limiting narrowly the extent of the relief 
afibrded, giving it upon hard terms to the applicants, or at- 
taching some degree of shame to the acceptance.* 

It is a distressing reflection, that there are no other methods 
of confining the number of applicants for relief within the 
means available to the community, except the offer of hard 
conditions, or the want of a patron. It were to be desired, 
that asylums of the more comfortable class, instead of favour- 
itism, should be open to unmerited misfortune only; and that, 
to prevent improper nominations, the pretensions of the can- 
didate should be ascertained by the inquest of a jury. The 
rest can probably be protected from too great an influx of in- 
digence, by no other means consistent with humanity, except 
the observance of severe, though impartial, discipline, sufficient 
to invest them with some degree of terror. 

This evil does not apply to the asylums devoted to invalid 
soldiers and sailors. The qualification is so plain and intelli- 
gible, that the doors ought to be shut against none who are 
possessed of it; and the comforts of the institution can never 

* At Paris, the limitation of relief afforded by the Hospice des IncurableSt 
and those of Petites liaisons, of St. Louis, of Charite, and many others, is 
of the former kind; the admissions to the Hotel-Dieu, Biceire, Saltpetrieref 
and Ejifans-Trouves, are subject to a limitation of the latter kind. As the 
number of applicants duly qualified for admission in the establishment first 
mentioned always exceeds theii- capactiy, the choice must ultimately be 
decided by favour or interest. 
58 



402 ON CONSUMPTION. book hi, 

increase the number of applicants. Their being nursed in the 
public asylums with the same domestic care and comfort, as 
are to be found in the homes of persons of the same class in 
life, and indulged in repose, and some even of the whims of 
old age, will undoubtedly somewhat enhance the charge, that 
is to say, so far as it might prolong lives, that otherwise might 
fall a sacrifice to wretchedness; but this is the utmost increase 
of charge; and it is one, that neither patriotism nor humanity 
will grudge.* 

The houses of Industry, that are multiplying so rapidly in 
America, Holland, Germany, and France, are noble and ex- 
cellent institutions of public benevolence. They are designed 
to provide all persons of sound health with work according to 
their respective capacities: some of them are open to any 
workman out of employ, that chooses to apply; others are a 
kind of houses of correction, where vagrants, beggars and of- 
fenders, are kept to work for fixed periods. Convicts have 
sometimes been set to hard labour in their respective voca- 
tions, during their confinement; whereby the public has been 
wholly or partially relieved from the charge of keeping up 
gaols, and a method contrived for reforming the morals of the 
criminals, and rendering them a blessing, instead of a curse, 
to society. 

Indeed, such establishments can hardly be reckoned among 
the items of public charge; for, the moment their production 
equals their consumption they are no longer an incumbrance 
to any body. They are of immense benefit in a dense popu- 
lation, where, amidst the vast variety of occupations, some 
must unavoidably be in a state of temporary inaction. The 
perpetual shiftings of commerce, the introduction of new pro- 
cesses, the withdrawing of capital from a productive concern, 
accidental fire, or other calamity, may throw numbers out of 
employment; and the most deserving individual may, without 
any fault of his own, be reduced to the extreme of want. In 
these institutions, he is sure of earning at least a subsistence, 
if not in his own line, in one of a similar description. 

The grand obstacle to such establishments is, the great out- 
lay of capital they require. They are adventures of indus- 
try, and as such must be provided with a variety of tools, im- 
plements, and machines, besides raw material of different kinds 
to work upon. Before they can be said to maintain them- 
selves, they must earn enough to pay the interest of the capi- 
tal embarked, as well as their current expenses. 

The favour shown them by the public authority, in the gra- 

* Yet it is well worth consideration, whether It be not more to the ad- 
vantag-e, both of the state and of its pensioners, to maintain them at their 
own homes upon a fixed income, or to board them out with individuals. 
The Mb^ de St. Pierre, whose mind was ever actively at work for the pub- 
lic good, has estimated the charge of maintaining the invalids in their sump- 
tuous establishment at Paris, to be three times as much as that of their 
maintenance at their respective homes, dnnales Polit. p. 209. 



CHAP. VI. ON CONSUMPTION. 403 

tuitous supply of the capital and buildings, and in many other 
particulars, would make them interfere with private under- 
takings, were they not subject, on the other hand, to some pe- 
culiar disadvantages. They are obliged to confine their ope- 
rations to such kinds of work, as sort with the feebleness and 
general inferiority in skill of the inmates, and can not direct 
them to such as may be most in demand. Moreover, it is in 
most of them a matter of regulation and police, to lay by al- 
ways the third or fourth-part of the labourer's wages or earn- 
ings, as a capital to set him up, on his quitting the establish- 
ment: t,his is an excellent precaution, but prevents their work- 
ing at such cheap rates, as to drive all competition out of the 
market. 

Although the honour, attached to the direction and manage- 
ment of institutions of public benevolence, will generally at- 
tract the gratuitous service of the affluent and respectable part 
of the community, yet, when the duties become numerous and 
laborious, they are commonly discharged by gratuitous ad- 
ministrators with the most unfeeling negligence. It was pro- 
bably by no means wise, to subject all the hospitals of Paris 
to a general superintendence. At London, each hospital is 
separately administered; and the whole are managed with more 
economy and attention in consequence. A laudable emula- 
tion is thereby excited amongst the managers of rival establish- 
ments; which affords an additional proof of the practicability 
and benefit of competition in the business of public adminis- 
tration. 

Of the Charges of Public Edifices and Works. 

I shall not here attempt to enumerate the great variety of 
works requisite for the use of the public; but merely lay down 
some general rules, for calculating their cost to the nation. It 
is often impossible to estimate with any tolerable accuracy the 
public benefit derived from them. How is one to calculate 
the utility, that is to say, the pleasure, which the inhabitants 
of a city derive from a public terrace or promenade. It is a 
positive beaefitto have, within an easy distance of the close and 
crowded streets of a populous town, some place where the 
population can breathe a pure and wholesome atmosphere, and 
take health and exercise, under the shade of a grove, or with 
a verdant prospect before the eye; and where school-boys can 
spend their hours of recreation; yet this advantage it would 
be impossible to set a precise value upon. 

The amount of its cost, however, may be ascertained or es- 
timated. The cost of every public work or construction con- 
sists: — 

1, Of the rent of the surface whereon it is erected; which 
rent amounts to what a tenant would give for it to the proprie- 
tor. 

2. Of the interest of the capital expended in the erection. 



404 ON CONSUMPTION. book iii. 

3. Of the annual charge of maintenance. 

Sometimes, one or more of these items may he curtailed. 
When the soil, whereon a public work is erected, will fetch 
nothing from either a purchaser or a tenant, the public will be 
charged with nothing in the nature of rent; for no rent could 
be got if the spot had never been built on, A bridge, for in- 
stance, costs nothing but the interest of the capital expended 
in its construction, and the annual charge of keeping it in re- 
pair. If it be suffered to fall into decay, the public consumes, 
annually, the agency of the capital vested, reckoned in the 
shape of interest on the sum expended, and, gradually, the ca- 
pital itself, into the bargain; for, as soon as the bridge ceases 
to be passable, not only is the agency or rent of the capital 
lost, but the capital is gone likewise. 

Supposing one of the dikes in Holland to have cost in the 
outset, lOOjOOOyr.; the annual charge on the score of interest, 
at 5 per cent, will be 5000/r.; and, if it cost 3000 fr. more in 
the keeping it up, the total annual charge will be 8000 ^r. 

The same mode of reckoning may be applied to roads and 
canals. If a road be broader than necessary, there is annually 
a loss of the rent of all the superfluous land it occupies, and, 
besides, of all the additional charge of repair. Many of the 
roads out of Paris are ISO feet wide, including the unpaved 
part on each side: whereas, a breadth of 60 feet would be full 
wide for all useful purposes, and would be quite magnificent 
enough, even for the approaches to a great metropolis. The 
surplus is only so much useless splendour; indeed, I hardly 
know how to call it so; for the narrow pavement in the centre 
of a broad road, the two sides of which are impassable the 
greater part of the year, is an equal imputation upon the libe- 
rality, and upon the good sense and taste of the nation. It 
gives a disagreeable sensation, to see so much loss of space, 
more particularly if it be badly kept. It appears like a wish 
to have magnificent roads, without havingthe means of keeping 
them uniform and in good condition ; like the palaces of the 
Italian nobles, that never feel the effects of the broom. 

Be it as it may, on the sides of the road, I am speaking of, 
there is a space of 120 feet, that might be restored to cultiva- 
tion; that is to say, 50 cirpens to the ordinary league. Add 
together the rent of the surplus land, the interest of the sum 
expended in the first cost and preparation, and the annual 
charge of keeping up the unnecessary space, which is some- 
thing, badly as it is kept up; you will then ascertain the sum 
France pays annually for the very questionable honour of hav- 
ing roads too wide, by more than the half, leading to streets 
too narrow, by three-fourths. * 

• With all this waste of space in the great roads of France, there are in 
none of them either paved or gravelled foot-\va3's, passable at seasons, or 
stone seats, for the passengers to rest upon, or places of temporary shelter 
from the weather, or cisterns to quench the thirst 5 all which might be add- 
ed with a very trifling expense. 



CHAP. VII. ON CONSUMPTION. 105 

Roads and canals are costly public works, even in countries 
where they are under judicious and economical manage- 
ment. Yet, probably, in most cases, the benefits they afford 
to the community far exceed the charges. Of this the reader 
may be convinced, on reference to what has been said above 
of the value generated by the mere commercial operation of 
transfer from one spot to another,* and of the general rule, 
that every saving in the charges of production is so much 
gain to the consumer.! Were we to calculate, what would be 
the charge of carriage upon all the article and commodities, 
that now pass along any road in the course of a year, if the 
road did not exist, and compare it with the utmost charge un- 
der present circumstances, the whole difference, that would 
appear, will be so much gain to the consumers of all those ar- 
ticles, and so much positive and clear net profit to the com- 
munity.J 

Canals are still more beneficial; for in them the saving of 
carriage is still more considerable. § 

Public works of no utility, such as palaces, triumphal arches, 
monumental columns, and the like, are items of national luxu- 
ry. They are equally indefensible, with instances of private 
prodigality. The unsatisfactory gratification, afforded by 
them to the vanity of the prince or the people, by no means 
balances the cost, and often the misery, they have occasioned. 



CHAPTER VII. 



or THE ACTUAL CONTRIBUTORS TO PUBLIC CONSUMPTION. 

A PORTION of the objects of public consumption have, in 
some very rare instances, been provided by a private indivi- 
dual. We see occasional acts of private munificence, in the 

* Book I. chap. 9. |Boak 11. chap. 3. 

i To say, that, if the road were not in existence, the charge of transport 
could never be so enormous as here sug-gested, because the transport would 
never take place at all, and people would contrive to do without the ob- 
jects of U-ansport, would be a strange way of eluding' the argument. Self- 
denial of this kind, enforced by the want of means to purchase, is an in- 
stance of poverty, not of wealth. The poverty of the consumer is extreme, 
in respect to every object he is thus made too poor to purchase: and he be- 
comes richer in respect to it, in proportion as its price or value declines. 

§ In lieu of canals, iron rail-roads from one town to another, will proba- 
bly be one day constructed. The saving in the costs of transport would pro- 
bably exceed the interest of the very heavy expense in the outset. Besides 



406 ON CONSUMPTION. book iit. 

erectioa of a hospital, the laying out of a road, or of public 
gardens, upon the land, and at the cost, of an individual. In 
ancient times, examples of this kind were more frequent though 
much less meritorious. The private opulence of the ancients 
was commonly the fruit of domestic, or provincial, plunder 
and speculation, or perhaps the spoil of a hostile nation, pur- 
chased with the blood of fellow citizens. Among the moderns, 
though such excess do sometimes occur, individual wealth is, 
in the great majorit}^ of cases, the fruit of personal industry 
and economy. In England, where there are so many institu- 
tions founded and supported by private funds, most of the for- 
tunes of the founders and supporters have been acquired in in- 
dustrious occupations. It requires a greater exertion of gene- 
rosity to sacrifice wealth, acquired by a long course of toil 
and self-denial, than to give away what has been obtained by 
a stroke of good fortune, or even by an act of lucky temerity. 

Among the Romans, a further portion of the public con- 
sumption was supplied directly by the vanquished nations who 
were subjected to a tribute, which the victors consumed. 

In most modern states («), there is some territorial proper- 
ty vested, either in the nation at large, or in the subordinate 
communities, cities, towns, and villages, which is leased out, 
or occupied directly by the public. In France_, most of the 
public lands of tillage and pasturage, with their appurtenances, 
are let out on lease; the government reserving only the na- 
tional forests under the direct administration of its agents. 
The produce of the whole forms a considerable item in the 
catalogue of public resources. 

But these resources consist for the most part of the produce 
of taxes, levied upon the subjects or citizens. These taxes 
are sometimes national; i. e. levied upon the whole nation, and 
paid into the general treasury of the state, whence the public 
national expenditure is defrayed; and sometimes local, or pro- 
vincial, i. e. levied upon the inhabitants of a separate canton, 
or province only, and paid into the local treasury, whence are 
defrayed the local expenses. 

It is a principle of equity, that consumption should be charg- 
ed to those, who derive gratification from it; consequently, 
those countries must be pronounced to be the best governed, 
in respect of taxation, where each class of inhabitants contri- 
butes in taxation proportionately to the benefit derived by it 
from the expenditure. 

the additional facllit)^ of movement, roads of this kind would remedy the 
violent jolting of passengers and goods. Undertakings of suclr magnitude 
can only be prosecuted in countries, where capital is very abundant, and 
where the government inspires the adventurers with a firm assurance of 
reaping themselves the profit of the adventure. 



(a) And in most of those of antiquity. T. 



cHAr. vir. ON CONSUMPTION. 407 

Every individual and class in the community is benefited l)y 
the central administration, or, in other words, the general go- 
vernment: so likewise of the security afforded by the national 
military establishment; for the provinces can hardly be secure 
from external attack, if the enemy have possession of the me- 
tropolis, and can thence overawe and control them; imposing 
laws upon districts where his force has not penetrated, and dis- 
posing of the lives and property, even of such as have not 
seen the face of an enemy. For the same reason the charge of 
fortresses, arsenals, and "diplomatic agents is properly thrown 
upon the whole community. 

It would seem, that the administration of justice should 
be classed among the general charges, although the security 
and advantage it affords have more of a local character. — 
When the magistracy of Bordeaux arrests and tries an offend- 
er, the public internal security of France is unquestionably 
promoted. The charge of gaols and court-houses necessarily 
follows that of the magistracy. Smith has expressed an 
opinion, that civil justice should be defrayed by the litigating 
parties; which would be more practicable than at present, 
were the judges in the appointment of the parties in each par- 
ticular case, and no otherwise in the nomination of the public 
authority, than inasmuch as the choice might be limited to 
specified persons of approved knowledge and integrity. They 
would then be arbitrators and a sort of equitable jurors, and 
might be paid proportionately to the matter in dispute without 
regard to the length of the suit; and would thus have an ob- 
vious interest in simplifying the process, and sparing their own 
time and trouble, as well as in attracting business by the gene- 
ral equity of their decisions, (a) 

But local administration and local institutions of utility, plea- 
sure, instruction, or beneficence, appear to yield a benefit ex- 
clusively to the place or district where they are situated. — 
Wherefore, it should seem, that their expenses ought to fall, 
as in most countries they do, upon the local population. Not 



(a) Our author seems in this passag-e to have become a convert to the 
opinion of Smith, in respect to the civil tribunals of a nation, from which 
he had expressed his dissent, in former editions. Though arbitration may 
be a very good mode of setthng civil suits, where the parties are both 
anxious to come to a settlement, and indeed is frequently resorted to, and 
should always be encouraged; yet it is manifest, that there must be a com- 
pulsory tribunal for tlie obstinate, or refractory. And, since security of 
person and property is the main object of social institutions, it is but just, 
that invasion in a particular instance should be repelled and deterred at the 
public charge. In strict justice, tlie invader should be held to make good 
the whole damage; and so he is, or ought to be, in the shape of costs, fine, 
damages, or otherwise. But it is not consistent with equity that the suf- 
ferer should be deterred from pui'suing his claim, by superadding a propor- 
tion of the outlay upon the judicial establishment to the charge of witnesses 
and agents, wliich he must necessarily advance, and to the risk of inability 
in the dehnquent, even in the event of ultimate success. T. 



408 ON CONSUMPTION. book hi. 

but that the nation at large derives some benefit from good 
provincial administration, or institutions. A stranger has ac- 
cess to the public places, libraries, schools, walks, and hospi- 
tals of the district; but the principal benefit unquestionably 
results to the immediate neighbourhood. 

It is good economy to leave the administration of the local 
receipts and disbursements to the local authorities; particu- 
larly where they are appointed by those, whose funds they 
administer. There is much less waste, when the money is 
spent under the eye of those, who contribute it, and who are 
to reap the benefit; besides, the expense is better proportioned 
to the advantage expected. When one passes through a city 
or town badly paved and ill-conditioned, or sees a canal or 
harbour in a state of dilapidation, one may conclude, in nine 
cases out of ten, that the authorities, who are to administer 
the funds appropriated to those objects, do not reside on the 
spot. 

In this particular, small states have an advantage' over more 
extensive ones. They have more enjoyment from a less ex- 
penditure upon objects of public utility or amusement; be- 
cause they are at nand to see that the funds, destined to the 
object, are faithfully applied. 



CHAPTER Vlll. 

OP TAXATION. («) 

SECTION I. 

Of the Effect of all kinds of Taxation in general. 

Taxation is the transfer of a portion of the national pro- 
ducts from the hands of individuals to those of the govern- 
ment, for the purpose of meeting the public consumption or 
expenditure. Whatever be the denomination it bears, whether 
tax, contribution, duty, excise, custom, aid, subsidy,* grant, 

* What avails It, for Instance, that taxation is imposed by consent of the 
people or their representatives, if there exist in the state a power, that by- 
its acts can leave the people no alternative but consent? De Lolme in his 



(a) L'Imput, expressed in English by the general term, taxation, as dis- 
tinguished from impot, tax, the particular tenn. T. 



CHAP. VIII. ON CONSUMPTION. 409 

or free gift, it is virtually a burthen imposed upon individuals, 
either in a separate or corporate character, by the ruling power 
for the time being, for the purpose of supplying the consump- 
tion it may think proper to make at their expense; in short, 
an impost, in the literal sense. 

It would be foreign to the plan of this work, to inquire in 
whom the right of taxation is or ought to be vested. In the 
science of political economy, taxation must be considered as 
matter of fact, and not of right; and nothing further is to be 
regarded, than its nature, the source whence it derives the 
values it absorbs, and its effect upon national and individual 
interests. The province of this science extends no further. 

The object of taxation is, not the actual commodity, but the 
value of the commodity, given by the tax-payer to the tax- 
gatherer. Its being paid in silver, in goods, or in personal 
service, is a mere accidental circumstance, which may be more 
or less advantageous to the subject or to the sovereign. The 
essential pdint is, the value of the silver, the goods, or the ser- 
vice. The moment that value is parted with by the tax-payer, 
it Is positively lost to him; the moment it is consumed by the 
government or its agents, it is lost to all the world, and never 
reverts to, or re-exists in, society. This, I apprehend, has 
already been demonstrated, when the general effect of public 
consumption was under consideration. It was there shown, 
that, however the money levied by taxation may be refunded 
to the nation, its value is never refunded; because it is never 
returned gratuitously, or refunded by the public fuctionaries, 
without receiving an equivalent in the way of barter or ex- 
change. 

The same causes, that we have found to make unproductive 
consumption no-wise favourable to reproduction, prevent taxa- 
tion from at all promoting it. Taxation deprives the producer 
of a product, which he would otherwise have the option of 
derivmg a personal gratification from, if consumed unproduc- 
tively, or of turning to profit, if he preferred to devote it to an 
useful employment. One product is a means of raising ano- 
ther; and, therefore, the subtraction of a product must needs 
diminish, instead of augmenting, productive power. 

It may be urged, that the pressure of taxation impels the 
productive classes to redouble their exertions, and thus tends 
to enlarge the national production, I answer, that, in the first 

Essay on the English Constitution., says, that the right of the Crown to 
make war is nugatory, while the people have the right of refusing the sup- 
plies for carrying it on. May it not be said, with much more truth, that 
the right of the people to deny the supplies is nugatory, when the crown 
has involved them in a predicament, that makes consent a matter of ne- 
cessity? The liberties of Great Britain have no real security, except in the 
freedom of the press; which rests itself, rather upon the liabits and opinions 
of the nation, than upon legal enactments or judicial decisions. A nation 
is free, when it is bent on freedom; and the most formidable obstacle to the 
establishment of civil liberty is, the absence of the desire for it. 

5d 



410 ON CONSUMPTION. book hi. 

place, mere exertion can not alone produce, there must be 
capital for it to work upon, and capital is but an accumulation 
of the very products, that taxation takes from the subject: 
that, in the second place, it is evident, that the values, which 
industry creates expressly to satisfy the demands of taxation, 
are no increase of wealth; for they are seized on and devoured 
by taxation. It is a glaring absurdity to pretend, that taxation 
contributes to national wealth, by engrossing part of the na- 
tional produce; and enriches the nation by consuming part of 
its wealth. Indeed, it would be trifling with my reader's time, 
to notice such a fallacy, did not most governments act upon 
this principle, and had not well-intentioned and scientific 
writers endeavoured to support and establish it.* 

If, from the circumstance, that the nations most grievously 
taxed are those most abounding in wealth, as Great Britain for 
example, we are desired to infer, that their superior wealth 
arises from their heavier taxation, it would be a manifest inver- 
sion of cause and effect. A man is not rich, because he pays 
largely; but he is able to pay largely, because he is rich. It 
would be not a little ridiculous, if a man should think to en- 
rich himself by spending largely, because he sees a rich 
neighbour doing so. It must be clear, that the rich man spends, 
because he is rich; but never can enrich himself by the act of 
spending. 

Cause and effect are easily distinguished, when they occur 
in succession; but are often confounded, when the operation 
is continuous and simultaneous. 

Hence, it is manifest, that, although taxation may be, and 
often is, productive of good, when the sums it absorbs are 
properly applied, yet, the act of levying is always attended 
with mischief in the outset. And this mischief good princes 
and governments have always endeavoured to render as in- 
considerable to their subjects as possible, by the practice of 
economy, and by levying, not to the full extent of the peo- 
ple's ability, but' to such extent only, as is absolutely unavoid- 
able. That rigid economy is the rarest of princely virtues, is 
owing to the circumstance of the throne being constantly beset 
with individuals, who are interested in the absence of it; and 
who are always endeavouring, by the most specious reasoning, 

* By the same reasoning' it has been attempted to prove, that luxury 
and barren consumption operate as a stimulus to production. Yet, they are 
less mischievous than taxation; inasmuch as they redound to the personal 
gratification of the party himself: whereas, to use the expedient of taxation 
as a stimulative to increased production, is to redouble tlie exertions of the 
community, for the sole purpose of multiplying its privations, rather than 
its enjoyments. For, if increased taxation be applied to the support of a 
complex, overgrown, and ostentatious internal administration, or of a super- 
fluous and disproportionate mihtary establishment, that may act as a drain 
of individual wealth, and of the flower of the national youth, and an ag- 
gressor upon the peace and happiness of domestic life, will not this be pay- 
ing a.1 dearly for a grievous public nuisance, as if it were a benefit of the 
flrst magnitude? 



CHAP. VIII. ON CONSUMPTION. 411 

to impress the conviction, that magnificence is conducive to 
public prosperity, and that profuse public expenditure is bene- 
ficial to the state. It is the object of this third book to expose 
the absurdities of such representations. 

Others there are, who are not impudent enough to pretend, 
that puplic profusion is a public benefit; yet undertake to show 
by arithmetical deduction, that the people are scarcely burthen- 
ed at all, and are equal to a much higher scale of taxation. As 
Sully tells us in his Memoirs, " The ear of the prince is assail- 
ed by a set of flattering advisers, who think to make their 
court to him by perpetually suggesting new ways of raising 
money; discharged functionaries for the most part, whose ex- 
perience of the sweets of office has left no other impression, 
than the tincture of the baneful art of fiscal extortion; and who 
seek to recommend themselves to power and favoui^, by com- 
mending it to the lips of royalty."* 

Others suggest financial projects, and ways and means for 
filling the coffers of the prince, as they assert, without fleecing 
the subject. But no plan of finance can give to the govern- 
ment, without taking either from the people, or from the go- 
vernment itself in some other way; unless it be a downright 
adventure of industry. Something can not be produced out 
of nothing by a mere touch of the wand. However an opera- 
tion may ne cloaked in mystery, however often we may twist 
and turn and. transform values, there are but two ways of ob- 
taining them; viz. creating oneself, or taking from others. 
The best scheme of finance is, to spend as little as possible; 
and the best tax is always the lightest. 

Admitting these premises, that taxation is the taking from 
individuals a part of their property! for public purposes; that 
the value levied by taxation never reverts to the members of 
the community, after it has once been taken from them; and 
that taxation is not itself a means of reproduction; it is impos- 
sible to deny the conclusion, that the best taxes, or, rather 
those that are least bad, are 

1. Such as are the most moderate in their ratio. 

2. Such as are least attended with those vexatious circum- 
stances, that harass the tax-payer without bringing any thing 
into the public exchequer. 

3. Such as press impartially on all classes. 

4. Such as are least injurious to reproduction. 

* Memoires, liv. xx. 

■|- It is hardly necessary to controvert an opinion, entertained by sove- 
reigns in times past, respecting' the property of their subjects. We find 
Louis XIV. writing in these terms, professedly for the instruction of his son 
in matters of government; " Kings are absolute lords naturally possessing 
the entire and uncontrolled disposal of all property, whether belonging to 
the church or to the laity, to be exercised at all times with due reganl to 
economy, and to the general interests of the state." (Euvres de Louis 
XIY., Memoires Hist. J. D, 1666. 



412 ON CONSUMPTION. book hi. 

5. Such as are rather favourable than otherwise to the na- 
tional morality; that is to say, to the prevalence of habits, use- 
ful and beneficial to society. 

These positions are almost self-evident; yet I shall proceed 
to illustrate them successively, with some few observations. 

1. Of such as are most moderate in their ratio. 

Since taxation does, in point of fact, deprive the tax-payer 
of a product, which is to him, either a means of personal grati- 
fication, or a means of reproduction, the lighter the tax is, the 
less must be the privation. 

Taxation, pushed to the extreme, has the lamentable effect, 
of impoverishing the individual, without enriching the state. 
We may readily conceive how this can happen, if we recall to 
our attention the former position; viz. that each tax-payer's 
consumption, whether productive or not, is always limited to 
the amount of his revenue. No part of his revenue, there- 
fore, can be taken from him, without necessarily curtailing 
his consumption in the same ratio. This must needs reduce 
the demand for all those objects he can no longer consume, and 
particularly those affected by taxation. The diminution of 
demand must be followed by diminution of the supply of pro- 
duction; and, consequently, of the articles liable to taxation. 
Thus, the tax-payer is abridged of his enjoyments, the pro- 
ducer of his profits, and the public exchequer of its receipts.* 

* In France, before 1789, the average annual consumption of salt was 
estimated at 91bs. per head in the districts subject to the gabelle, and at 
181bs. per head in those exempt from that impost. De Monthieu, Influence 
des divers Impots, p. 141. Thus, taxation in this form obstructed the pro- 
duction of 1-2 of this article in the districts subjected to it, and reduced to 
1-2 the enjoj'ment it was capable of affording; to say nothing of the other 
mischiefs resulting from it; the injury to tillage, to the feeding of cattle, 
and to the preparation of salted goods; the popular animosity against the 
collectors of the tax, the consequent increase of crime and conviction, and 
the consignment to the gallies of numerous individuals, whose industry 
and courage might have been made available to the increase of national 
opulence. 

In 1804, the English government raised the duties on sugar 20 per cent. 
It might have been expected, that their average product to the public ex- 
chequer would have been advanced in the same ratio; i. e. from 2,778,000/. 
the former amount, to 3,330,000/.: instead of which, the increased duties 
produced but 2,537,000/,- exhibiting an absolute deficit. Speech of Henry 
Brougham, Esq. M. P. March, 13, 1817. 

The people of Great Britain might consume French wines at a very little 
advance upon the prices of France, and have the enjoyment of an unadul- 
terated, wholesome, and exhilarating beverage, costing perhaps a shilling 
a bottle. But the exorbitant duty upon this article has reduced its im- 
port and the product of the duty to a very trifle; and thus, the sole benefit 
resulting from the tax to the British nation is, the total privation of a cheap 
and wholesome object of consumption. 

The two last examples are a sufficient answer to the objection taken by 
Ricardo to this passage of my text; on the ground, that taxation is not in- 
jurious to production in the aggregate, inasmuch as the consumption of the 
state itself replaces that of individuals, which is annihilated by the tax. A 
tax, that robs the individual, without benefit to the exchequer, substitutes 



CHAP. vm. ON CONSUMPTION. 413 

This is the reason why a tax is not productive to the public 
exchequer, in proportion to its ratio; and why it has become a 
sort of apophthegm, that two and two do not make four in the 
arithmetic of finance. Excessive taxation is a kind of suicide, 
whether laid upon objects of necessity, or upon those of luxury; 
but there is this distinction, that, in the latter case, it extin- 
guishes only a portion of the products on which it falls, to- 
gether with the gratification they are calculated to afford; 
while, in the former, it extinguishes both production and con- 
sumption, and the tax-payer nimself into the bargain. 

Were it not almost self-evident, this principle might be il- 
lustrated, by abundant examples of the profit the state derives 
from a moderate scale of taxation, where it is sufficiently awake 
to its real interests. 

When Turgot, in 1775, reduced to i the market-dues and 
duties of entry upon fresh sea-fish sold in Paris, their product 
was no-wise diminished. The consumption of that article must, 
therefore, have doubled, the fishermen and dealers must have 
doubled their concerns and their profits; and, since population 
always increases with increasing production, the number of 
consumers must have been enlarged; and that of producers 
must have been enlarged likewise; for an increase of profits, 
that is to say, of individual revenue, multiplies savings, and 
thus generates the multiplication of capital and of families; 
and that very increase of production will, beyond all doubt, 
augment the product of taxation in other branches; to say no- 
thing of the popularity accruing to the government from the 
alleviation of tne national burthens. 

The government agents, who farm or administer the collec- 
tion of the taxes, very often abuse their interest and authority, 
to construe all doubtful points of fiscal law in their own fa- 
vour, and sometimes to create obscurity for the purpose of 
profiting by it. The effect is precisely the same, as if the scale 
of taxation were raised pro tanto.*^ Turgot adopted a con- 
no public consumption whatever, in place of the private consumption it 
extinguishes. 

* Of this a striking instance is given in a work entitled, Dlverses Mies sur 
la Legislation et V Adminisiration, pur M. C. St. Paul. One of the principal 
bankers of Paris having died in 1817, the dutj' on legacies and inheritance 
was levied upon the aggregate of his credit-account, and not upon the ba- 
lance after deducting the debits; and this by virtue of a proviso in the re- 
venue laws, which charges the duty upon the gross estate of a defunct, and 
not upon the residue after discharge of the outstanding claims. The dan- 
ger of fraud upon the revenue in stating the account is not sufficient to 
justify the exaction of more than is fairly due. 

The same department is in the habit of giving no notice to the execu- 
tors or other parties, of the payments falling due, until after the legal time 
has expired, in the hope of their incurring the penalty of default. The 
revolution had abolished this official and fiscal severity; but it was revived 
by the imperial government, and has been acted upon ever since. A clerk 
or officer has no chance of pi'omotion, unless he shows a disposition on all 
occasions to postpone the interests of the public to those of the exchequer. 



414 t)N CONSUMPTION. book m. 

trary course, and made it a rule to lean always to the side of 
the tax-payer. The public contractors made a great outcry at 
this innovation, declaring that it was impossible for them to 
fulfil their engagements, and ofiering to collect on the govern- 
ment account and risk. The event, however, falsified their 
predictions by an actual increase of the receipts. The greater 
lenity in the collection proved so advantageous to production, 
and the consumption consequent upon it, that the profits, 
which had before not exceeded 10,550,000 /m, rose to 60,- 
000,000 liv.; an advance which could hardly be credited, if it 
were not attested by unquestionable evidence.* 

We are told by Humboldt,t to whom we are indebted for a 
variety of valuable information, that in thirteen years from 
1778, during which time Spain adopted a somewhat more 
liberal system of government in regard to her American de- 
pendencies, the increase of the revenue in Mexico alone 
amounted to no less a sum than 100 millions of dollars; and 
that she drew from that country, during the same period, an ad- 
dition in the single article of silver, to amount of 14,500,000 
dollars. We may naturally suppose, that, in those years of 
prosperity, there was a corresponding, and rather greater in- 
crease of individual profits; for that is the source, whence all 
public revenue is derived. 

A similar course of conduct has invariably been followed 
by a similar efiect;J and it is a great satisfaction to a writer of 
liberal principles to be able to prove by experience, that mode- 
ration is the best policy. § 

* (Euvres dt Turgot, torn. i. p. 170. The accounts of the farmers-general 
were minutely stated, and rig-idly investigated, because the crown partici- 
pated in their profits. 

■\ Essai Pol. sur la Nouvelle Espagne, liv. v. c. 12. 

t This position is further confirmed by an instance mentioned in a letter, 
addressed in 1785, by the then Marquis of Lansdowne to the Abbe Morellet, 
stating', « that in respect to the article of tea, the good effect of the reduc- 
tion of duty had surpassed all expectation. The amount of sale had ad- 
vanced from 5,000,0001bs. to 12,000,0001bs.,in spite of many unfavourable 
circumstances; besides which, smuggling had been so much crippled, that 
the public revenue had been increased to a degree that astonished every 
body.' 

§ This doctrine has been combated by Ricardo, in his Principles of Po- 
litical Economy and Taxatimi. That writer maintains, that since the 
amount and the product of industry is always proportionate to the quantum 
of the capital engaged in it, the extinction of one branch by taxation must 
needs be compensated by the product of some other, towards which the 
industry and capital, thrown out of employ, will naturally be diverted. I 
answer, that whenever taxation diverts capital from one mode of employ- 
ment to another, it annihilates the profits of all who are thrown out of em- 
ploy by the change, and diminishes those of the rest of the community; for 
industry may be presumed to have chosen the most profitable channel. I 
will go further, and say, that a forcible diversion of the current of produc- 
tion anniliilates many additional sources of profit to industry. Besides, it 
makes a vast difference to the public prosperity, whether the individual or 



CHAr. VIII. ON CONSUMPTION. 415 

Upon the same principles, it will be easy to demonstrate in 
the next place, that the taxes least mischievous are: 

2. Such as are least attended with those vexatious circum- 
stances, that harass the tax-payer, without bringing any thing 
into the public exchequer. 

It has been held by many, that the costs of collection are no 
very great evil, inasmuch as they are refunded to the commu- 
nity in some other shape. On this head, I must refer my 
readers to what has been already observed.* These costs are 
no more refunded, than the net proceeds of the taxes them- 
selves; because both the one and the other consists in reality, 
not of the money, wherein the taxes are paid, but of the value, 
wherewith the tax-payer procures that money, and the value 
which the government again procures with it; which latter is 
destroyed and consumed outright. 

The necessities of princes have operated far more effectually 
than their regard to the public good, to introduce the practice 
of better order and economy in the financial departments of 
most European states during the two last centuries, than in 
former times. The people are generally made to bear as 
much as they can well stand under; so that every saving in 
the charge of collection has gone to swell the receipts of the 
exchequer. 

Sully tells us in his Memoirs,t that, for 30,000,000 liv. 
brought into the royal treasury, in 1598, by means of taxa- 
tion, individuals were out of pocket 150,000,000 /m; and as- 
sures us, that he had with great pains ascertained the fact, 
however incredible it might appear. Under the administra- 
tion of Necker, upon a revenue of 557,500,000, liv. the charges 
of collection amounted to no more than 58,000,000 liv,; yet, un- 
der his management, there were 250,000 persons employed in 
the collection, most of them, however, had other collateral oc- 
cupations. The charge was, therefore, about 10 4-5 per cent.; 
yet this is m.uch higher than the rate at vvhich the business is 
done in England. J 

Besides the charge of collection, there are other circum- 

the state be the consumer. A thriving and lucrative branch of industry 
promotes the creation and accumulation of new capital; whereas, under 
the pressure of taxation, it ceases to be lucrative; capital diminishes gra- 
dually instead of increasing; wealth and production decline inconsequence, 
and prosperity vanishes, leaving behind the pressure of unremitting taxa- 
tion. Ricardo has endeavoured to introduce the unbending maxims of 
geometrical demonstration; in the science of political economy^ there is no 
method less worthy of reliance. 

* Chap. V. sect. 1. f Liv. xx. 

\ Under tlie system of Napoleon, which made civilization retrograde to 
this, as well as in most otlier particulai's, the charges of collection, in which 
must be included the cliarge of privation and the irrecoverable arrears, 
were much more considerable; but the full extent of the mischief he caused 
is not vet ascertained. 



416 ON CX)NSUMPTION. book iii. 

stances, that are burthensome to the people without being pro- 
ductive of gain to the public revenue. Lawsuits, imprison- 
ment and other preventive measures, entail additional expense, 
without procuring the smallest increase of revenue. And this 
addition is sure to fall on the most necessitous class of tax-pay- 
ers; for the other classes pay without litigation or constraint. 
Such odious means of enforcing the payment of taxes are 
precisely the same, as demanding of a man \2fr. because he 
has not wherewithal to pay 10 fr. Rigour is never necessary 
to enforce taxation where it presses lightly on the resources 
of individuals; but when a state is so unfortunate, as to be 
obliged to impose heavy burthens, of two evils, the process of 
levy by distress is preferable to that of personal constraint. 
For at any rate, by seizing and selling the tax-payer's goods, 
and thereby raising the arrears of his taxes, he is compelled to 
pay no more than is due; and the whole of what he does pay 
goes into the public purse. 

On this account it is, that works executed by the public re- 
quisition of labour, as the roads were in France under the old 
regime, are always a mischievous kind of taxation. The time 
lost by the labourers put in requisition in coming three or four 
leagues, perhaps, to their work, and that which is always 
wasted by people who get no pay, and work against their in- 
clination, is all a dead loss to the public, with no return of 
revenue. Even supposing the work to be well executed, there 
is often more loss incurred by the interruption of the regular 
agricultural pursuits, than gain made from the compulsory 
employment that has been substituted. Turgot called upon 
the surveyors and engineers of the respective provinces for 
an estimate of the average expense, one year with another, of 
keeping up old roads, and constructing the usual number of 
new ones, directing them to make their calculations on the 
most liberal scale. The estimate of the annual expense, made 
in compliance with his orders, amounted to 10,000,000 liv. for 
the whole kingdom: whereas, according to the calculations of 
Turgot, the old corvie system involved a sacrifice to the na- 
tion of 40,000,000 Zm* 

Days of rest, enjoined either by law, or by custom and 
usage too powerful to be infringed upon, are another kind of 
taxation, productive of nothing to the public purse. 

3. Such as press impartially on all classes. 

Taxation being a burthen, must needs weigh lightest on each 
individual, when it bears upon all alike. When it presses in- 
equitably upon one individual or branch of industry, it is an 
indirect, as well as a direct, incumbrance; for it prevents the 
particular branch or the individual from competing on even 

* Necker reckons the corvee at 20 millions only; but probably he takes 
account of nothing, but the value of the day-labour exacted; and does not 
notice the injury resulting- from this method of supplying the public neces- 
sities. 



CHAP. VIII. ON CONSUMPTION. 417 

terms with the rest. An exemption, granted to one manufac- 
ture, has often been the ruin of several others. Favour to one 
is most commonly injustice to all others. 

The partial assessment of taxation is no less prejudicial to 
the public revenue, than unjust to individual interests. Those 
who are too lightly taxed, are not likely to cry out for an in- 
crease; and those who are too heavily taxed, are seldom regular 
in their payments. The public revenue suffers in both ways. 

It has been questioned whether it be just to tax that portion 
of revenues, which is spent on luxuries, more heavily than that 
spent on objects of necessity. It seems but reasonable to do 
so; for taxation is a sacrifice to the preservation of society 
and of social organization, which ought not to be purchased by 
the destruction of individuals. Yet, the privation of absolute 
necessaries implies the extinction of existence. It would be 
somewhat bold to maintain, that a parent is bound in justice 
to stint the food or clothing of his child, to furnish his contin- 
gent to the ostentatious splendour of a court, or the needless 
magnificence of public edifices. Where is the benefit of social 
institutions to an individual, whom they rob of an object of 
positive enjoyment or necessity in actual possession, and oSer 
nothing in return, but the participation in a remote and con- 
tingent good, which any man in his senses would reject with 
disdain? 

But how is the line to be drawn between necessaries and 
superfluities? In this discrimination, there is the greatest diffi- 
culty; for the terms, necessaries and superfluities, convey no 
determinate or absolute notion, but always have reference to 
the time, the place, the age and the condition of the party; so 
that, were it laid down as a general rule, to tax none but su- 
perfluities, there would be no knowing where to begin, and 
where to stop. All that we certainly know is, that the income 
of a person or a family may be so confined, as barely to suffice 
for existence; and may be augmented from that minimum up- 
wards by imperceptible gradation, till it embrace every grati- 
fication of sense, of luxury, or of vanity; each successive gra- 
tification being one step further removed from the limits of 
strict necessity, till at last the extreme of frivolity and caprice 
is arrived at; so that, if it be desired to tax individual income, 
in such manner as to press lighter, in proportion as that in- 
come approaches to the confines of bare necessity, taxation 
must not only be equitably apportioned, but must press on re- 
venue with progressive gravity. 

In fact, supposing taxation to be exactly proportionate to in- 
dividual income, a tax of ten per cent, for instance, a family 
possessed of 300,000 /r. per annum would pay 30,000 fr. in 
taxes, leaving a clear residue of 270,000 /r. for the family ex- 
penditure. With such an expenditure, the family could not 
only live in abundance, but could still enjoy a vast number of 
gratificationsby no means essential to happiness. Whereas ano- 
ther family, with an income of 300 /r., reduced by taxation to 

60 



418 ON CONSUMPTION. book m. 

210 fr. per annum, would, with our present habits of life, 
and w?ys of thinking, be stinted in the bare necessaries of sub- 
sistence. Thus, a tax merely pi'oportionate to individual in- 
come would be far from equitable; and this is probably what 
Smith meant, by declarins; it reasonable, that the rich man 
should contribute to the public expenses, not merely in pro- 
portion to the amount of his revenue, but even somewhat more. 
For my part, I have no hesitation in going further, and saying, 
that taxation can not be equitable, unless its ratio is progres- 
sive.* 

4. Such as are least injurious to reproduction. 
Of the values, whereof taxation deprives individuals, a great 
part would, undoubtedly, if left at the disposal of the individu- 
als themselves, have gone to the satisfaction of their wants 
and appetites; but some part would have been laid by, and have 
gone to the further accumulation of productive capital. Thus, 
all taxation may be said to injure reproduction, inasmuch as it 
prevents the accumulation of productive capital. 

This effect is more direct and serious, whenever the tax- 

Eayer is obliged to withdraw a part of the capital already em- 
arked, for the purpose of enabling him to pay the tax; which 
case, as Sismondi has shrewdly observed, resembles the exac- 
tion of a tithe upon grain at seed-time, instead of harvest time. 
Of this kind is the tax on legacies and successions. An heir, 
succeeding to a property of 100,000yr. and called upon for a 
tax of 5 per cent, upon it, will pay it, not out of his ordinary 
income, burthened as it is already with the ordinary taxes, but 
dut of the inheritance, which is thereby reduced to 95,000/n 
Wherefore, if it happen to be a vested capital of 100,000 /r., 
and be reduced by the tax to 95,000 /r., the national capital 
will be diminished to the amount of the 5000 fr. thus diverted 
into the public exchequer. 

It is the same with all taxes upon the transfer of property. 
The owner of land worth 100,000 /r. will get but 95,000/r. 
for it, if the purchaser be saddled with a tax of 5 per cent. 
The seller will have a disposable capital of 95,000yr. onl}^, in 
lieu of land worth 100,000 /r.; and the national capital will 
sustain a loss of the difference. Should the purchaser be so bad 
an arithmetician, as to pay the full value of the land, without 
allowing for the tax, he will sacrifice a capital of 105,000 ^r. in 

* Wealth of Nations, book v. c. 2. It has been objected, that a pro- 
gressive scale of taxation presents the disadvantage of operating as a pen- 
alty to deter activity and frugality from the accumulation of capital. But 
it must be obvious, that taxation of all kinds subtracts a portion only, and 
generally a very moderate portion, of the addition made to the fortune of 
an individual; so that every one has a much stronger inducement to invite, 
than penalty to deter, accumulation. If a person had to pay 200 fr. more 
in taxes, upon every addition of lOOO/r. to his revenue, still he would mul- 
tiply his enjoyments in a larger ratio than his sacrifices. Vide what is said 
in Sect. 4. "of the same Chapter, on the subject of the land-tax of England. 
Ibid. 



CHAP. vTii. ON CONSUMPTION. 119 

thepurchaseofvalueto the amount of but 100,000/r. In either 
ease, the loss to the national capital will betlie same; although, 
in the latter, it will fall upon the purchaser instead of the 
seller. 

Taxes upon transfer, besides the mischief of pressing upon 
capital, are a clog to the circulation of property. But, has the 
public any interest in its free circulation? So long as the ob- 
ject is in existence, is it not as well placed in one hand as in 
another? Certainly not. The public has a perpetual interest 
in the utmost possible freedom of its circulation; because by 
that means it is most likely to get into the hands of those, that 
can make the most of it. Why does one man sell his land? 
but because he thinks he can lay out the value to more advan- 
tage in some channel of productive industry. And why does 
another buy it? but because he wishes to invest a capital, that 
is laying idle or less productively vested; or because he thinks 
it capable of improvement. The transfer tends to augment the 
national income, because it tends to augment the income of 
the two contracting parties. If they be deterred by the ex- 
penses of the transfer, those expenses will have prevented this 
probable increase of the national income. 

Such taxes, however, as encroach upon the productive ca- 
pital of the community, and, consequently, abridge the de- 
mand for labour and the profits of industry within the commu- 
nity, possess, in a very high degree, one quality, which that 
distinguished political economist, Arthur Young, has pro- 
nounced to be an essential requisite in taxation; viz. the facili- 
ty and cheapness of collection.* Since taxation presents at 
best but a choice of evils, a nation, heavily burtnened, will 
probably do well, in submitting to a moderate impost upon 
capital. 

Taxes upon law-process, and, generally all that is paid to 
law officers and agents, are taxes upon capital.(l) For litiga- 
tion is not proportionate to the income of the suitors, but to 
accident, to the complexity of family interests, and to the im- 
perfections of the law itself. 

* This is the reason, why it has been found practicable to raise the duty 
on registration to its present high scale. Were it reduced, the product to 
the exchequer would probably be equally great; and the nation would en- 
joy the benefit of greater freedom of circulation, besides experiencing less 
encroachment upon its capital, (a) 



(a) The effect on the national capital would be pi-ecisely the same; the 
repeated action of the tax would make up for its lenity. T. 



(1) [Taxes upon law-pi-ocess are the most grievous and oppressive that 
have ever been resorted to, and since the appearance of Mr. Bentham's 
work on Law taxes, no one, who has read it, can doubt their impolicy. It 
is said in the Edinburgh Review, (vol. 27, page 358) "that one day Mr. 



420 ON CONSUMPTION. book m. 

Forfeitures are equally a tax on capital. 

The influence of taxation upon production is not confined to 
the circumstance of diminishing one of its sources, that is to 
say, capital; it operates besides in the nature of a penalty, in- 
flicted upon certain branches of production and consumption. 
Patents, licences to follow any specified calling, and, general- 
ly, all taxes, that bear directly upon industr}^, are liable to this 
objection; but, when moderate in their ratio, industry will con- 
trive to surmount such obstacles without much difficulty. 

Nor is industry affected only by taxes bearing directly upon 
it; it is indirectly affected by sucn also, as bear upon the con- 
sumption of the articles it has to work upon. 

The products consumed in reproduction are, for the most 
part, those of primary necessity; and taxes, that discourage 
such products, must be injurious to reproduction. This is more 
especially the case in respect to those raw materials of manu- 
facture, which can only be consumed reproductively. An ex- 
cessive duty upon cotton- wool checks the production of all ar- 
articles, wherein that substance is worked up.* 

Brazil is a country abounding in articles, that might be cured 
and exported, if they were allowed to be salted. Its fishe- 
ries are very productive, and cattle so abundant, that they are 
killed merely for the sake of the hide. Indeed, it is thence 
that our tanneries in Europe are in a great measure supplied. 
But the salt duties prevent the export of either fish or meat; 
and thus, for the sake of a revenue of a million o^ francs, per- 
haps incalculable mischief is done to the productive powers of 
the country, as well as to the public revenue, which they 
might be made to yield. 

in like manner, as taxation operates in the nature of a pen- 

• In both England and France, premiums are given upon the importation 
of specific raw materials, with a view to encourage manufacture. This is 
an error on the opposite side. Upon this principle, instead of a tax on the 
product of land, a bounty should be given to all, who would take the trou- 
ble to cultivate; for domestic agriculture furnishes the raw material of most 
manufactures; as grain in particular, which is transformed, through the me- 
diation of human exertion, into value of various kinds, exceeding that con- 
sumed in the process. Customs or duties of import upon any article what- 
ever are equally equitable with direct taxes upon land;, both are positive 
evils; but the lighter the tax, the smaller the injury. 



Rose, in Mr. Pitt's presence, took Mr. Bentham aside, and informed him 
that they had read the pamphlet — that its reasoning was unanswerable — 
and that it was resolved there should be no more such taxes." " Yet Budget 
after Budget," remarks the reviewer, " has since been formed, in which 
those duties have made a part; and Mr, Pitt himself was found to patronize 
them upon his return to office in 1804." All the arguments ever brought 
forward in support of tliis objectionable impost, have been triumphantly re- 
futed by Mr. Bentham, in this work, which, it is said, in the same Review, 
"for closeness of reasoning, has not perhaps been equalled, and for excel- 
lence of style, has certainly never been surpassed."] 

AMEniDAiv Ebjtob. 



CHAP. viTi. ON CONSUMPTION. 421 

alty, to discourage reproductive consumption, it may be em- 
ployed to check consumption of an unproductive kind; in 
which case, it has the two-fold advantage, of subtracting no 
value from reproductive investment, and of rescuing values 
from unproductive consumption, to be employed in a manner 
more beneficial to the communit5\ This is the advantage of 
all taxes upon luxuries.* 

When sums, levied by taxation upon capital, instead of be- 
ing simply expended by the government, are laid out upon 
productive objects; or, when individuals contrive to make 
good the deficiency out of their private savings, the positive 
mischief of taxation is then balanced by a counteracting bene- 
fit. The proceeds of taxation are reproductively vested, when 
laid out in improving the internal communications, construct- 
ing harbours, or other such works of utility. Governments 
sometimes employ a part of the revenue thus realized in ad- 
ventures of industry. Colbert did so, when he made advances 
to the manufacturers of Lyons. The governments of Ham- 
burgh, and of some other places in Germany, were in the ha- 
bit of embarking their revenues in productive undertakings; 
and it is said, that the authorities of Berne were in the habit 
of so employing a part of its revenues every year; but such in- 
stances are of very rare occurrence. 

5. Such as are rather favourable than otherwise to the na- 
tional morality; that is to say, to the prevalence of habits, use- 
ful and beneficial to society. 

Taxation influences the habits of a nation, in the same way 
as it operates upon its production and consumption, viz: by 
imposing a pecuniary penalty upon specified acts; and it is, 
moreover, possessed of the grand requisites to render punish- 
ment effectual; namely, moderation and difficulty of evasion.! 
Without reference, therefore, to the purposes of finance and 
revenue, it is a powerful engine in the hands of government, 
for either corrupting or reformingthe national morals, and may 
be directed to the promotion of idleness or industry, extrava- 
gance or economy. 

The tax of five per cent, upon all hands devoted to produc- 
tive husbandry, and the exemption of pleasure-grounds, which 
existed in France before the revolution, operated, of course,, 
as a premium upon luxury, and a penalty upon agricultural 
enterprise. 

The tax of one per cent, upon the redemption of ground- 

* When it is absolutely necessary to lay a tax on a particular kind of con- 
sumption or industry, which it is desirable not to extinguish altogether, 
the burthen must be light in the commencement, and increased gradually 
and cautiousl3\ But, if it be desired to repress or annihilate a mischievous 
class of consumption or industry, the full weight of the tax should be thrown 
upon it at once. 

f The efficacy of these characteristics of punishment has been placed be- 
yond all doubt by Beccaria, in his tract, Dei delitti e delle pent; 



422 ON CONSUMPTION. book hi. 

rents and rent-charges was virtually a penalty upon an act, 
equally advantageous to the parties and to the community at 
large; a fine upon the meritorious exertions of prudent land- 
owners to pay off their incumbrances. 

The law of Napoleon, exacting from each scholar, educated 
in a private academy, a specified payment into the chests of 
the public universities, operated as a penalty upon that mode 
of education, which alone can soften national manners and 
fully develop the faculties of the human mind.* 

When a government derives a profit from the licensing of 
lotteries and gambling-houses, what does it else but offer a 
premium to a vice most fatal to domestic happiness, and de- 
structive of national prosperity? How disgraceful is it, to see 
a government thus acting as the pander of irregular desires, 
and imitating the fraudulent conduct it punishes in others, by 
holding out to want and avarice the bait of hollow and deceit- 
ful chance !t 



• Tills species of tux is still more iniquitous, because it must fall either 
upon orphans, or upon parents, who are disposed to submit to personal pri- 
vations, for the purpose of rearing- valuable citizens; because it is heavier 
in proportion to the number of children, and the degree of privation of the 
parent; and because it is disproportionate to the means of the individual, 
poor and rich being taxed alike, A parent of moderate fortune, with one 
son only, pays as much to the university as all the rest of his taxes together: 
if he have more sons than one, he is still worse off. Thus was this institu- 
tion converted by the usurper into an instrument of fiscal extortion, suffi- 
cient of itself to have ensured the relapse into barbarism, even had it never 
been made the medium of instilling false ideas or habits of sei-vility. The 
pretext, of making the profits of private establishments contribute to the 
expense of compulsory tuition, is by no means satisfactory. Supposing the 
tuition of the public Lycees to be, of all others, the best calculated to train 
up useful citizens; and, admitting' the justice of compelling a father, or a 
teacher to his choice, to bring his pupil to the lectures of the authorized 
professors, still the parties, least in need of this instruction, are those already 
placed in private establisJiments of education, and entrusted to teachers of 
their own selection. It may be for the interest of the community at large, 
to dispense particular classes of learning gratuitously; but it is the grossest 
oppression to force learning upon individuals, and make them pay dear for 
it into the barg-ain. If any one class in particular ought to defray the charge 
of moderate gratuitous tuition, it is that, which has no children of its own, 
and is in the perception of all the benefits of social life, without being sub- 
ject to all its bui'thens. 

f Lotteries and games of hazard, besides occupying- capital unprofitably, 
involve the waste of a vast deal of time, that might be turned to useful ac- 
count; and this item of expenditure can never redound to the profit of the 
exchequer. They have the fui-ther mischievous effect of accustoming man- 
kind to look to chance alone for what their own talents or enterprlze might 
attain; and to seek for personal gain, rather in the loss of others, than in the 
original sources of wealth. The reward of active energy appeal's paltry be- 
side the bait of a capital prize. Moreover, lotteries are a sort of tax, that, 
however voluntarily incurred, falls almost v/holly upon the necessitous; for 
nothing, but the pressure of want can drive mankind to adventure, with the 
chances manifestly against them. The suras thus embarked are for the 
most part, the portion of misery; or, what is worse, the fruit of actual crime. 



CHAP. VIII. ON CONSUMPTION. 423 

On the contrary, taxes, that check and confine the excesses 
of vanity and vice, besides 3'ielding; a revenue to the state, 
operate as a means of prevention. Humboldt mentions a tax 
upon coclf-fighting, which yields to the Mexican government 
45,000 dollars per annum, and has the further advantage of 
checking that cruel and barbarous diversion. 

Exorbitant or inequitable taxation promotes fraud, falsehood, 
and perjury. Well-meaning persons are presented with the 
distressing alternative, of violating truth, or sacrificing their 
interests in favour of less scrupulous fellow-citizens. They 
can not but feel involuntary disgust, at seeing acts, in them- 
selves innocent, and sometimes even useful and meritorious, 
branded with the name, and subjected to all the consequences, 
of criminality. 

These are the principal rules, by which present or future 
taxation must be weighed, with a view to the public prosperi- 
ty. Ater these general remarks, which are applicable to 
taxation in all its branches, it may be useful to examine the 
various modes of assessment; in other words, the methods 
adopted for procuring money from the subject; as well as to 
inquire, upon what classes of the community the burthen prin- 
cipally falls. 



SECTION 11. 

Of the different Modes of Assessment, and the Classes they 
press upon respectively. 

Taxation, as we have seen above, is a requisition by the 
government upon its subjects for a portion of their products, 
or of their value. It is the business of the political economist 
to explain the effects resulting froin the nature of the products 
put in requisition, and from the mode of apportioning the 
burthen, as well as upon whom the burthen of the charge 
really falls, since it must inevitably fall upon some one or 
other. The application of the above principles in a few spe- 
cific instances will show, how they may be applied in all 
others. 

The public authority levies the values taken in the way of 
taxation, sometimes in the shape of money, sometimes in kind, 
according to its own wants, or the ability of the tax-payer. In 
whatever shape it is paid, the actual contribution of the tax- 
payer is always of the value of the article he gives. If the 
government, wanting or pretending to want corn, or leather, 
or woollens^ makes a requisition of those articles upon the 
tax-payer, and obliges him to furnish them' in kind, the tax 
paid amounts exactly to what the payer has expended in pro- 
curing those articles, or what he could have sold them for, if 



424 ON CONSUMPTION. book hi. 

the government had not taken them from him. This is the 
only way of ascertaining the amount of the tax, whatever 
price or rate the government may set upon it in the plenitude 
of its power. 

So, likewise, the charges of collection, in whatever shape 
they may appear, are always an aggravation of the assess- 
ment, whether they accrue to the profit of the state or not. — 
If the tax-payer be obliged to lose his time, or transport his 
goods, for the purpose of paying the tax, the whole of the 
time lost, or expense of transport, is an aggravation of the 
tax. 

Among the contributions, that a government exacts from its 
subjects, should likewise be comprised, all the expenses which 
its political conduct may bring upon the nation. Thus, in es- 
timating the expenses of war, we must include the value of 
equipment and pocket-money, with which the military are 
supplied by themselves or their families; the value of the time 
lost by the militia; the sums paid for exemption and substi- 
tutes; the full charge of quarters for the troops; the pillage 
and destruction they may be guilty of; the presents and at- 
tentions lavished on them by friends or countrymen on their 
return: to all which must be added, the alms extorted from 
pity and compassion by the misery consequent upon such mis- 
rule. For, in fact, none of these values need have been taken 
from the members of the community under a better system of 
government. And, although none of them have gone into the 
treasury of the monarch, yet have they been jDaid by the peo- 
ple, and their amount is as completely lost, as if they had con- 
tributed to the happiness of the hiiman species. 

Hence, we may form some notion of the extent of the na- 
tional sacrifices. But, from what source are they drawn? — 
Doubtless, either from the annual product of the national in- 
dustry, land, and capital; that is to say, from the national re- 
venue; or from the values previously saved and accumulated; 
that is to say, from the national capital. 

When taxation is moderate, the subject can not only pay his 
taxes wholly out of his revenue, but will not be altogether 
disabled from besides saving some part of that revenue: and, 
although some of the tax-payers may be obliged to trench up- 
on their capital for the payment of their taxes, the loss to the 
general stock is amply reimbursed by the savings, which this 
happy state of affairs allows others to effect. 

But it is far otherwise, when military despotism or usurped 
authority extorts excessive contributions. Great part of the 
taxes is then taken from the vested and accumulated capital; 
and, if the country be long subjected to its domination, the 
revenues of each successive year are progressively reduced, 
and the ruin and depopulation of the country will recoil upon 
its rulers, unless their downfal be accelerated by their own 
folly and excesses. 

Under the protecting influence of just and regular govern- 



CHAP. viri. ON CONSUMPTION. 425 

ment, on the contrary, there is a progressive annual enlarge- 
ment of the profits and revenues, on which taxation is to be 
levied; and that taxation, without any alteration of its ratio, 
gradually becomes more productive by the mere multiplica- 
tion of taxable products. 

Nor is the government more deeply interested in moderat- 
ing the ratio of taxation, than in its impartial assessment up- 
on every class of individual revenue, and its equal pressure 
upon all. In fact, when revenue is partially affected, taxation 
sooner reaches the extreme limits of the ability of some classes, 
while others are scarcely touched at all: it becomes vexatious 
and destructive, before it arrives at the highest practicable ra- 
tio. The burthen is galling, not because of its weight, but 
because it does not rest upon all shoulders alike. 

The different methods employed to reach individual reve- 
nues, may be classed under two grand divisions — direct, and 
indirect, taxation; the former is, the absolute demand of a 
specific portion of an individual's real or supposed revenue; 
the latter, a demand of a specific sum on each act of consump- 
tion of certain specified objects, to which that income may be 
applied. 

In neither case, is the real subject of taxation that commodi- 
ty, on which the estimate is made, and which forms the ground- 
work of the demand for the tax; or of necessity that value, 
whereof a part is taken by the state; individual revenue is the 
only real subject of taxation; and the specific commodity is 
selected only as a more or less effective means of discovering 
and attacking that revenue. If individual honesty could in 
every case be relied on, the matter would be simple enough; 
all that would be requisite would be, to ask each person the 
amount of his annual profits, that is to say, his annual revenue. 
The contingent of each would be readily settled, and one tax 
only necessary, which would be at the same time the most 
equitable, and the cheapest in the collection. This was the 
method adopted at Hamburgh, before that city fell into mis- 
fortune; but it can never be practised, except in a republic of 
small extent, and very moderately taxed. 

As a means of assessing direct taxation proportionately to 
the respective revenues of the tax-payers, governments some- 
times compel the production of leases by landlords, or, where 
there is no lease, set a value on the land, and demand a cer- 
tain proportion of that value from the proprietor; this is called 
a land-tax.* Sometimes they estimate the revenue by the 
rent of the habitation, and the number of servants, horses and 
carriages kept, and make the assessment accordingly. This is 
called in France, the tax on moveables. t Sometimes they 
calculate the profits of each person's profession or calling, by 
the extent of the population and district where it is followed. 

* Cuntrihrdum-fonclere — "j" mobiliere. 
61 



426 ON CONSUMPTION. book hi. 

This is called in France, the license-tax.* All these different 
modes of assessment are expedients of direct taxation. 

In the assessment of indirect taxation, and such as is in- 
tended to bear upon specific classes of consumption, the object 
itself is alone attended to, without regard to the party who 
may incur the charge. Sometimes a portion of the value of 
the specific product is demanded at the time of production; 
as in France, in the article of salt. Sometimes the demand 
is made on entry, either into the state, as in the duties of 
import;! or into the towns only, as in the duties of entry.f — 
Sometimes a tax is demanded of the consumer at the moment 
of transfer to him from the last producer; as in the case of the 
stamp duty in England, (a) and the duty on theatrical tickets 
in France. Sometimes the government requires a commodity 
to bear a particular mark, for which it makes a charge, as in 
the case of the assay-mark of silver, and stamp on newspapers. 
Sometimes it monopolizes the manufacture of a particular ar- 
ticle, or the performance of a particular kind of business; as 
in the monopoly of tobacco, and the postage of letters. Some- 
times, instead of charging the commodity itself, it charges the 
payment of its price; as in the case of stamps on receipts and 
mercantile paper. All these are different ways of raising a 
revenue by indirect taxation; for the demand is not made on 
any person in particular, but attaches upon the product or ar- 
ticle taxed. § 

It may easily be conceived, that a class of revenue, which 
may escape one of these taxes, will be affected by another; 
and that the multiplicity of the forms of taxation gives a great 
approximation to its equal distribution; provided always, that 
all are kept within the bounds of moderation. 

Every one of these modes of assessment has peculiar ad- 
vantages and peculiar disadvantages, besides the general evil 
of all taxation, viz: that of approaching a part of the pro- 
ducts of the community to purposes little conducive to its hap- 
piness and reproductive powers. Direct taxation, for instance, 
is cheap in the collection; but, on the other hand, it is paid 
with reluctance, and must be enforced with considerable harsh- 
ness and rigour. Besides, it bears very inequitably upon the 
individual. A rich merchant, charged only 600 /r. for his li- 
cense, makes an annual profit, perhaps, of 100,000 /K; while 
the retailer, who can scarcely be supposed to make more than 

* Les Patentes. f Douanes. t Octroi. 

§ Not because they affect the tax-payer indirectly; for this circumstance 
is equally applicable to many items of direct taxation; as, for instance, to 
the license-tax fpaicntesj, part of which falls indirectly upon the consumer, 
who buys of the licensed dealer. 



(a) It is difficult to say, what branch of the English stamp-duties is here al- 
luded to. T. 



CHAP. viir. ON CONSUMPTION. 427 

4000 /r., is charged for his license lOOyr., which is the lowest 
rate. The revenue of the land-holder is already affected by 
the land-tax, before it is further reduced by the tax on move- 
ables; while the capitalist is subjected to the latter burthen 
only. 

Indirect taxation has the recommendation of being levyable 
with more ease, and with less apparent vexation or hardship. 
All taxes are paid with reluctance, because the equivalent to 
be expected for them, i. e. the security afforded by good or- 
der and government, is a negative benefit, which does not im- 
mediately interest individuals; for the benefit afforded consists 
rather in prevention of ill, that in the diffusion of good. But 
the buyer of the taxed commodity does not suspect himself to 
be paying for the protection of government, which probably 
he cares very little about; but merely for the commodity it- 
self, which is an object of his urgent desire, although, in fact, 
that price is aggravated by the tax. The inducement to con- 
sume is strong enough to include the demand of the govern- 
ment; and he readily parts with a value, that procures an im- 
diate gratification. 

It is this circumstance, that makes such taxes appear to be 
voluntary. And, indeed, so much so were they considered by 
the United States before their emancipation, that, although the 
right of the British Parliament to tax America without her 
consent was stoutly denied, yet she was ready to acknow- 
ledge the right of imposing taxes upon consumption, which 
every body could evade if he pleased, by abstaining from the 
articles taxed.* Personal taxes are viewed in a different light, 
and have more of the character of ostensible spoliation. 

Indirect taxation is levied piecemeal, and paid by individu- 
als according to their respective ability at the moment. It in- 
volves none of the perplexity of separate assessments on each 
province, department, or individual; or of the inquisitorial in- 
spection into private circumstances; nor does it make one per- 
son suffer for the default of another. The inconvenience of 
appeals and private animosities, as well as of levy by distress 
or imprisonment, is avoided altogether. 

Another advantage of indirect taxation is, that it enables the 
government to bias the different classes of consumption; fa- 
vouring such as promote the public prosperity, as does repro- 
ductive consumption of all kinds: and checking such as tend 

• Vide Examination of T?. Franklin, at the bar of the House of Com- 
mons, 1766. Memoirs, vol. i. Appendix 6. (a) 



(ff) The denial went to the whole of what is called interiial taxation; the 
admission, which appears on the part of the American agents to have been 
a concession for the sake of peace, went no farther than to external taxes 
for the regulation of trade. And even tliis concession on the part of some 
of the agents was very soon retracted, and the right of taxation denied in 
loto. Ibid. vol. i. passim. T. 



428 ON CONSUMPTION. book hi. 

to public impoverishment, as do all kinds of unproductive con- 
sumption; discouraging the costly and insipid indulgences of 
the wealthy, and promoting the simpler and cheaper enjoy- 
ments of the poor and industrious. 

It has been objected to indirect taxation, that it entails a 
heavy expense of collection and management, and a large es- 
tablishmentof clerks,officers,directors,and subordinate agents; 
but it is observable, that these charges may be vastly reduced 
by good administration. The excise and stamp-duties in En- 
gland cost but 3i per cent, in the collection in the year 1 799. * 
There are few classes of direct taxation, that are managed so 
economically in France. 

It has been further objected, that its product is uncertain 
and fluctuating; whereas, the public exigencies require a regu- 
lar and certain supply: but there has never been any lack of 
bidders, whenever such taxes have been let out to farm; and 
experience has shown, that the product of every class of taxa- 
tion may always be nearly estimated and safely reckoned upon, 
except in very rare and extraordinary emergencies. Besides, 
taxes on consumption are necessarily various; so that, the defi- 
cit of one is covered by the surplus of another. 

Indirect taxation is, however, an incentive to fraud, and 
obliges governments to brand with the character of guilt, ac- 
tions that are innocent in their nature; and, consequently, to 
resort to a distressing severity of punishment. But this mis- 
chief is never considerable, until taxation has grown excessive, 
so as to make the temptation to fraud counterbalance the dan- 
ger incurred. All excess of taxation is attended with this evil; 
that, without enlarging the receipts of the public purse, it mul- 
tiplies the sufferings of the population. 

It may be observed, that consumption, and, consequently, 
individual revenue, are unequally affected by indirect, as well 
as by direct, taxation: for the private consumption of many 
articles is not proportionate to the revenue of the consumer. 
The possessor of an annual revenue of 1 00,000 /r. does not 
consume in the year an hundred times as much salt, as the 
possessor of a revenue of 1000 Jr. only. But this inequality 
may be obviated by the variety of taxes on consumption. 
Moreover, it is to be recollected, that such taxes fall upon in- 
comes already charged with the taxes on land and on move- 
ables. A person, whose whole income is derived from land, 
in i^espect to which he is taxed in the first instance, pays on 
the same income a second tax under the head of moveables; 
and a third on every taxed article, that he buys and con- 
sumes. 

Although all these kinds of taxes be paid in the outset, by the 
persons of whom they are demanded by the public authority, 

* Gamier, Traduction de Smith, torn. iv. p. 438. According to Arthur 
Young-, the stamp-duties in his time cost but 5,691/. in the collection, upon 
a receipt of 1,330,000/.; which is less than | per cent. 



CHAP. VIII. ON CONSUMPTION. 429 

it would be wrong to suppose, that they always ultimately fall 
on the original payers, who, in many instances, are not the 
parties really charged, but merely advance the tax in the first 
instance, and contrive to get indemnified wholly or partially 
by the consumers of their own peculiar products. But the 
rate of indemnity is infinitely diversified by the respective 
circumstances of the individuals. 

Of this diversity, we may form some notion, by the consi- 
deration of the following general facts: 

When the taxation of the producers of a specific commodity 
operates to raise its price, part of the tax is paid by the con- 
sumers of the commodity. If its price be no-wise raised, it 
falls wholly upon the producers. If the commodity, instead of 
being thereby advanced in price, is deteriorated in quality, a 
portion of the tax at least must fall upon the consumer; for a 
purchase of inferior quality at equal price is equivalent to a 
purchase of equal quality and superior price. 

Every addition to price must needs reduce the number of 
those possessed of the ability to purchase; or, at any rate, must 
diminish the extent of that ability.*^ There is much less salt 
consumed, when it sells for 3s. than when it sells for Is. the lb. 
Now, the ratio of the demand to the means of production being 
lowered, productive agency in this department is worse paid; 
that is to say, the master-manufacturer of salt, and all the sub- 
ordinate agents and labourei's, together with the capitalists, 
that supplies the funds, and the landlord of the premises where 
the concern is carried on, must be content with smaller profits, 
because their product is less in demand, t The productive 
classes, indeed, naturally strive to indemnify themselves to the 
amount of the tax; but, they can never succeed to the full ex- 
tent, because the intrinsic value of the commodity, that, I 
mean, which goes to pay the charges of production, is really 
diminished. So that, in fact, the tax upon an article never 
raises its total price by the full amount of the tax; because, to 
do so, the total demand must remain the same; which it never 
can do. Wherefore, in such cases, the tax falls, partly upon 

* Suprci, Book II. chap. 1. 

■f- The position, that the interest of the capitahst and the rent of the 
landlord are thereby lowered, however paradoxical it may appear, is, ne- 
vertheless, quite true. It may be asked, why should the capitalist, who 
makes the advance to the manufacturer, or the landlord, whose land he 
occupies, lower their demands, in consequence of a portion of the product 
being subtracted by taxation? But is no allowance to be made for conse- 
quent delay of payment, claims of allowances, failures, and legal expenses? 
All, or at least a portion, of which must fall upon the landlord and capital- 
ist: and often without any suspicion on their part, that they are thus made 
to participate in the burthen. In a complex social organization, the pres- 
sure of taxation is often imperceptible. 

This shows the danger of adherance to invariable principle; and of aban- 
doning the experimental method of Smith, and consti'ucting a system of 
theoretical deduction, as some recent English writers have done, in imita- 
tion of the economists of the last century. 



430 ON CONSUMPTION. book hi. 

those, who still continue to consume, notwithstanding the in- 
crease of price, and partly upon the producers, who raise a 
less product, and find that, in consequence of the reduced de- 
mand, they really obtain less on the sale, when the tax comes 
to be deducted. The public revenue gains the whole excess of 
price to the consumer, and the whole of the profit, which the 
producer is thus compelled to resign. The effect is analogous 
to that of gunpowder, which at the same time propels the bul- 
let, and makes the piece recoil. 

By laying a tax upon the consumption of woollens, their 
consumption is reduced, and the revenue of the wool-grower 
suffers in consequence. It is true, he may take to a different 
kind of cultivation; but we may fairly suppose, that, under all 
the circumstances of soil and situation, the rearing of sheep 
was the most profitable kind of culture; otherwise, he would 
not have chosen it. A change in the mode of cultivation must, 
therefore, involve a loss of revenue. But the clothier and the 
capitalist will each be subjected to a portion of the loss result- 
ing from the tax. 

Each concurrent producer is affected by a tax on an article 
of consumption, in proportion only to the share he may have 
in raising the product taxed. 

When the owner of the soil furnishes the greatest part of 
the value of a product, as he does in respect to products con- 
sumed nearly in the primary state, he it is that bears the 
greatest part of that portion of the tax, which falls on the pro- 
ducers. A duty of entry upon the wine imported into the 
towns, falls heavily upon the wine-grower; but an exorbitant 
excise upon lace will affect the flax-grower in a degree hardly 
perceptible; whereas, all the other producers, the dealers, the 
operative and speculative manufacturers, who create the far 
greater proportion of the value of the lace, will suffer very se- 
verely. 

When the value of a product is partly of foreign, and partly 
of domestic creation, the domestic producers bear nearly the 
whole burthen of the tax. A tax upon cottons in France will 
reduce the earnings of her cotton manufacturers, by lowering 
the demand for their product; thus, part of the tax will fall on 
them. But the wages of the productive agency of the cot- 
ton-growers in America will be very little affected indeed, un- 
less there be a concurrence of other circumstances. In fact, 
the tax would reduce the consumption in France 10 per cent, 
perhaps, and the demand in America 1 per cent, only, if the 
demand from France were but one tenth of the general demand 
upon America. 

The taxation of an object of consumption, if it be one of 
primary necessity, operates upon the price of almost all other 
products, and consequently falls upon the revenues of all the 
other consumers. An octroi upon meat, corn, and fuel, at 
their entry into a town, enhances the price of every thing 
manufactured in it; while a tax upon the tobacco there consum- 



CHAP. VIII. ON CONSUMPTION. ^31 

ed makes no other commodity dearer, the producers and con- 
sumers of tobacco alone are affected; and for a very plain rea- 
son; the producer who indulges in superfluities has to main- 
tain a competition with another, who abstains from them; but, 
if he pays a tax upon necessaries, he need fear no competition; 
for his neighbours will be all in the same predicament. 

The direct taxation of the productive classes must, a fortiori^ 
affect the consumers of their products, but can never raise the 
prices of those products so much, as completely to indemnify 
the producer; because as I have repeatedly explained, the in- 
creased price abridges the demand, and the contraction of the 
demand reduces the profits of all the productive agency, that 
has been exerted in the supply. 

Of the concurrent producers of a specific product, some can 
more easily evade the effect of the tax than others. The capi- 
talist, whose capital is not absolutely vested and sunk in a par- 
ticular business, may withdraw it and transfer it elsewhere, 
from a concern that yields him a reduced interest, or has be- 
come more hazardous. The adventurer or master-manufactur- 
er, may in many cases, liquidate his account, and transfer his 
labour and intelligence to some other quarter. Not so the 
land-owner and proprietor of fixed capital.* An acre of vine- 
yard or cornland will only produce a given quantity of corn 
or wine, whatever be the ratio of taxation; which may take 
the h or even § of the net produce, or rent as it is called, and 
yet the land be tilled for the sake of the remaining i, or \.\ 
The rent, that is to say, the portion assigned to the proprietor, 
M^ill be reduced, and that is all. The reason will be manifest 
to any one, who considers, that in the case supposed, the land 
continues to raise and supply the market with the same 
amount of produce as before; while on the other hand, the mo- 
tives in which the demand originates remain just as they were. J 

* Vidt Supra. Book I. chap. 4. for the explanation of the mode, in which 
the land-holder concurs in production by the advance of his land; and must, 
therefore, be included amongst the productive classes. 

■j- The cultivation need never be abandoned altogether, until taxation 
takes more than the whole surplus product, applicable to the payment of 
rent; it is then worth nobody's while to cultivate at all; for not only could 
the proprietor receive nothing, the whole being appropriated by the state; 
but the farmer would be compelled to pay to the state a higher rent, than 
he could afford. 

i: There is this peculiarity attending the products of agricultural industry; 
viz: that their average piice is not raised by growing scai-city, because popu- 
lation is sure to decline co-extensively with the declining supply of human 
aliment; so that the demand necessarily diminishes equally with the supply. 
Thus, it is not found, tliat wheat is dearer in tliose countries, where great 
part of the land is tlirown out of tillage, than where it is all in a high state 
of cultivation. In Spain, wheat is not now dearer, than in the time of Fer- 
dinand and Isabella, though it is thei'e produced in much less abundance; 
for the number of mouths to be fed is also much less. On the contrar}', the 
lands of both England and France were less cultivated in the middle ages 
than at the present day; and their product of grain less abundant; yet it 



433 ON CONSUMPTION. book hi. 

If, then, the intensity of supply and demand must both remain 
the same, in spite of any increase or diminution of the ratio 
of the direct taxation upon the land, the price of the product 
supplied will likewise remain unchanged; and nothing but a 
change of price can saddle the consumer with any portion what- 
ever of that taxation.* 

Nor can the proprietor evade the tax even by the sale of the 
estate; for the price or purchase money will be calculated ac- 
cording to the revenue which may be left him by taxation. 
The purchaser makes his estimate according to the net reve- 
nue, charges and taxes deducted. If the ordinary interest on 
such investments of capital be five per cent, an estate, that 
before would have sold for 100,000 /r., will fetch but 80,000 
fr. when it comes to be charged with an annual tax of 1000 
fr. ; for its actual product to the proprietor will not exceed 
4000 y^. The effect is precisely the same, as if government 
were to appropriate to itself 1-5 of the land in the country; 
which would make no difierence at all to the consumers of its 
produce.t 

But property in dwelling-houses is otherwise circumstanced; 
a tax upon the ownership raises the rents; for a house, or 
rather the satisfaction it yields to the occupier, is a product of 
manufacture and not of land; and the high rate of house-rent 
reduces the production and consumption of houses, in the like 
manner as of cloth or any other manufactured commodity. 
Builders, finding their profits reduced, will build less; and con- 
sumers, finding the accommodation dearer, will content them- 
selves with inferior lodging. 

From all those circumstances, we may judge of the temerity 
of asserting as a general maxim, that taxation falls exclusively 
upon any specific class or classes of the community. It always 
falls upon those who can find no means of evasion; for every 
one naturally tries to shift the burthen off his own shoulders 
if possible; but the ability to evade it is infinitely varied, ac- 
cording to the various forms of assessment, and the position of 
each individual in the social system. Nay more; it varies 
at different times even in the same channel of production. 

does not appear, from a comparison of other values, that it was then much 
dearer than at present. The product and the population were both great- 
ly inferior; and the slackness of demand counterbalanced the slackness of 
supply. 

* It is a mistake to suppose, that the tax must bear equally upon the 
proprietor and the farmer, who finds the requisite capital and industry; for 
taxation can have no effect, either in reducing the quantity of land capable 
of cultivation, or in multiplying the number of farmers, able and willing" to 
undertake it; and, if neither supply and demand in this branch be varied, 
the ratio of rent must needs remain unaltered likewise. 

\ The Economists were quite correct in their position, that a land or ter- 
ritorial tax falls wholly upon the net product, and, consequently, upon the 
proprietors; but they were wrong in extending the doctrine so far as to 
assert, that all other taxes were defrayed out of the same fund. 



CHAP. rin. ON CONSUMPTION. 433 

When a commodity is in great, request, the holder will not part 
with the possession, unless indemnified for all his advances, of 
which the tax he has paid is a part: he will take nothing short 
of a full and complete indemnity. But, if any unloolced for 
occurrence should happen to lower the demand for his pro- 
duct, he will be glad enough to take the tax upon himself, for 
the sake of quickening the sale. There are few things so 
unsteady and variable, as the ratio of the pressure of taxation 
upon each respective class of the community. Those writers, 
who have maintained, that it bears upon any one or more 
classes in particular, or in any fixed or certain proportion, 
have found their theory contradicted by experience at every 
turn. 

Furthermore, the effects I have been describing, and which 
are equally consonant to experience and to reason, are uniform 
in their operation and of equal duration with the causes in 
which they originate. The owner of land will never be able 
to saddle the consumers of its produce with any part of his 
land-tax; not so the manufacturer. A manufactured com- 
modity will invariably feel a diminution in its consumption, 
in consequence of the price being raised by taxation, supposing 
other circumstances to be stationary; and its production will 
be a less profitable occupation. A person, who is neither pro- 
ducer nor consumer of an object of luxury, will never bear 
any portion whatever of the tax that may be laid upon it. — 
What, then, must we think of a proposition, unfortunately 
sanctioned by the approbation of an illustrious body,* that has 
too much neglected this branch of science, viz: " that it is of 
little importance whether a tax press upon one branch of reve- 
nue or another, provided it be of long standing; because every 
tax in the end affects every class of revenue, in like manner, 
as bleeding in the arm reduces the circulating blood of the 
whole human frame." The object of comparison has no analo- 
gy whatever with taxation. Social wealth is not a fluid, tend- 
ing constantly to find a level. It rather resembles the vegeta- 
ble creation, which admits of the loss of a limb without the 
destruction of the trunk, and in which the loss is more to be 
lamented, if the branch be productive, than if it be barren. — 
But the tree will bear cutting and hacking in every part, be- 
fore it becomes barren all over, or necessarily falls into decay. 
This is a far more apposite case; but neither will do to reason 
upon. Comparisons are not proofs, but mere illustrations, 
tending to make that intelligible, which can be made out in 
proof without their assistance. 

When speaking of taxes upon products, which I have some- 
times called taxes upon consumption, although not paid en- 
tirely in all cases by the consumer, I have hitherto made no 
mention of the particular stage of production, at which the tax 

• The French Institute, which awarded the prize of merit to an Essay of 
M. Canard, in support of this doctrine. 

62 



434 ON CONSUMPTION. book hi. 

may be demanded, or of the consequence of this particular cir- 
cumstance, which deserves a little of our attention. 

Products increase in value progressively, as they pass 
through the hands of the different concurrent producers: and 
even the most simple undergo a variety of modifications, be- 
fore they arrive at a fit state for consumption. Wherefore, a 
tax does not take the proportion of the value of a product 
which it professes, unless it be levied at the precise moment, 
when it has arrived at the full value, and has undergone all the 
productive modifications. If a tax be imposed on the raw mate- 
rial in the outset, proportioned, not to its then value, but to the 
value it is about to receive, the producer, in whose hands it 
happens to be, is obliged to advance a tax out of proportion 
to the value in hand; which advance, besides being highly in- 
convenient to himself, is refunded with equal inconvenience 
by every successive producer, till it reach the hands of the 
last, who is in turn but partially indemnified by the consumer. 
And there is this further mischief in such an advance of the 
tax; that it prevents the class of industry, which is called up- 
on to make it, from being originally set in motion, without a 
larger capital than the nature of the business requires; and, 
that the additional interest of the capital, which must be paid, 
part by the consumers, and part by the producers, is so much 
additional taxation, without any addition of public revenue.* 

Thus, both theory and experience lead to the conclusion 
precisely opposite to that drawn by the sect of Economists; 
and show that portion of the tax, which presses upon the con- 
sumer's revenue, to be always the more burthensome, the 
earlier it is levied in the process of production. 

Direct and personal taxes, which operate to raise the price 
of necessaries, or such as fall immediately upon necessaries, 
are liable to this inconvenience in the highest degree: for they 
oblige each producer to advance the personal tax on all the 
producers that have preceded him: so that the same amount of 
capital will set in motion a smaller amount of industry; and 
the tax-payers pay the tax, plus a compound interest upon it, 
yielding no benefit to the exchequer. 

* The duty on the import of cotton-wool into France was, in 1812, as high 
as 1000 /r. per bale, one bale with another. There were several manufac- 
tories averaging a consumption of two bales joer da)': and, as the amount 
of duty was a dead outlay, during the whole interval between the purchase 
of the raw material and the realization of the manufactured product, which 
may be taken at twelve months, they must each have required an ad- 
ditional capital of 600, 000 /r. more than would have been requisite but for 
tax; the interest of which they must have charged to the consumer, or have 
paid out of their own profits. The whole of it was so much addition of 
price to the French consumer, and aggravation of the pressure of taxation, 
unproductive of a single additional franc to the public revenue. The 
heaviest of the national burthens of that period were those, that made the 
least figure in the annual budget of the ministry: the people suffered, in 
very many instances, without knowing the nature of the grievance, as in 
the example just cited. 



CHAP. vm. ON CONSUMPTION. 435 

Nor is this mere theory: the neglect of these principles has 
occasioned many serious practical errors; like that of the Con- 
stituent Assembly of France, which carried to excess the sys- 
tem of direct taxation, especially upon land; being misled by 
the prevailing and fashionable doctrine of the Economists; — 
that land is the source of all wealth, the agriculturist the only 
productive labourer, and France naturally and essentially an 
agricultural country. 

It seems to me that, in the present stage of political econo- 
my, the principles of taxation will be more correctly laid down 
as follows: — 

Taxation is the taking a portion of the general product of 
the community, which never returns to the community in the 
channel of consumption. 

It takes from the community over and above the values actu- 
ally brought into the exchequer, the charges of collection, and 
the personal trouble it entails; together with all those values, 
of which it obstructs the creation. 

The privation resulting from taxation, whether voluntary or 
compulsory, affects the tax-payer in his quality of producer, 
whenever it operates to curtail his profits; that is to say, his 
income or revenue; and affects him in his character of con- 
sumer, whenever it increases his expenditure, by raising the 
prices of products. 

And, since an increase of expenditure is precisely the same 
thing as a diminution of revenue, whatever is taken by taxa- 
tion may be said to be so much deducted from the revenues of 
the community. 

In a great majority of cases, the tax-payer is affected by taxa- 
tion in both his characters, of producer and consumer; and,, 
when he can not manage to pay the public burthens out of his 
revenue, along with his personal consumption, he must en- 
croach upon his capital. When this encroachment of one per- 
son is not counterbalanced by the savings of another, the 
wealth of the community must gradually decline. 

The individual actually paying the tax to the tax-gatherer is 
not always the party really charged with it, at least, not the 
party charged with the whole that is paid. He frequently 
does no more than advance the tax, either wholly or partially; 
being afterwards reimbursed by the other classes of the com- 
munity, in a very complicated way, and perhaps after a vast 
variety of intermediate operations; so that a great many per- 
sons are paying portions of the tax, at a time when probably 
they least suspect it, either in the shape of the advanced price 
of commodities, or of personal loss, which they feel, but can 
not account for. 

The individuals, on whose revenues the tax ultimately falls, 
are the real tax-payers, and contribute value greatly exceeding 
the sum that is brought into the exchequer, even with the ad- 
dition of the charges of collection. Ihe misconduct of the 



436 ON CONSUMPTION. book hi. 

government in the matter of taxation, is proportionate to this 
excess of the payment above the receipt. 

A country heavily taxed may be considered in the same 
light as one labouring under natural impediments to produc- 
tion. With a heavy charge of production, it raises a very 
small product. Personal exertion, capital, and the productive 
agency of land, are all but poorly recompensed: and more is 
expended in earning a less profit. 

It is worth while on this head to recur to the principles ex- 
plained in a former passage,* when describing the difference 
between positive and relative dearness. High price resulting 
from taxation is positive dearness: it indicates a smaller pro- 
duct raised by the efforts of a larger amount of productive 
agency. Besides which, taxation generally occasions a cotem- 
porary advance of commodities in comparison with silver; 
that is to say, raises their money price: and for this reason; 
because specie is not an annual, regenerative product, like 
those that are swallowed up by taxation. Government is not 
a consumer of specie, except when it happens to export it for 
the payment of its armies, or foreign subsidies: it refunds in 
the purchases it makes all the specie it obtains by taxation: 
but the value levied is never refunded, t Wherefore, since 
taxation paralyzes one part of the sources of production, and 
effects the rapid destruction of the product of the other, when 
its ratio is excessive, it must gradually render products more 
scarce in proportion to the specie, which is not varied in quan- 
tity by the operation. Now, whenever the commodities to be 
circulated become fewer in proportion to the specie that is to 
circulate them, their relative value to the specie must rise; 
the same money will purchase a smaller quantity of products. 

It might be supposed, that such a superabundance of gold 
and silver specie ought to operate in exoneration of the public: 
yet it can not have that effect; for, however plentiful it maybe 
in proportion to other commodities, still individuals can only 
obtain it by giving their own products in exchange; and the 
raising of those products has become more difficult and more 
costly. 

Besides, when money-prices grow high, and specie is con- 
sequently reduced in relative value, it gradually takes its de- 
parture, and becomes scarcer, like all other commodities: and 
thus a country, burthened with a taxation too heavy for its 
productive powers, is first drained of its commodities, and 
next of its specie; till it gradually reaches the extreme of 
penury and depopulation. 

The careful study of these principles will give some insight 
into the mode, in which the annual and really monstrous ex- 

* Book II. chap. 3. 

\ For the reason uh-ead}' stated, viz. that purchases, made with the pro- 
ceeds of taxation, are acts of exchange, and not of restitution. 



CHAP. VIII. ON CONSUMPTION. 4 37 

pcnditure of national governments, in modern times, has 
habituated the subject to severer toil and exertion, without 
which it would be impossible that, after providins; for the 
subsistence, comfort, and pleasures of himself and family, ac- 
cording to the habits of the time and place, he should be able 
to meet the consumption of the state, and the collateral waste 
and destruction it occasions, the amount of which it is impos- 
sible to ascertain, though in the larger states it is confessedly- 
enormous. 

This ver}^ profusion, though it proves the vices and defects 
of the political system and organization, has been attended 
with one advantage at any rate; viz., that it has operated to 
stimulate the approximation to perfection in the art of produc- 
tion, by obliging mankind to turn the natural agents, to better 
account: in which point of view, taxation has certainly helped 
to develop and enlarge the human faculties: so that, when the 
progress of political science shall limit taxation to the supply 
of real public wants only, the improvements in the art of pro- 
duction will prove a vast accession to human happiness. But, 
should the abuses and complexity of the political system lead 
to the prevalence, extension, increase, and consolidation of op- 
pressive and disproportionate taxation, it is much to be fear- 
ed, that it may plunge again into barbarism those nations, 
whose productive powers are now the most astonishing: that 
the condition of the labouring classes, who are always the bulk 
of the community, may in such nations present a picture of 
drudgery so incessant and toilsome, as to make them cast a 
wistful eye upon the liberty of savage existence; which, 
though it offer no prospect of domestic comfort, at least pro- 
mises emancipation from perpetual exertion to supply the 
prodigalit)^ of a public expenditure, yielding to them no satis- 
faction, and, perhaps, even operating to their prejudice, (a) 



(a) This ground of apprehension is certain!}' just. It has been doubted 
by many pohtical theorists, whether the total remission of taxation would 
operate to improve tlie condition oftlie inferior productive classes: inas- 
much, as all, that is now paid into tlie pubhc exchequer, would quickly 
be appropriated by the classes, who should happen to be in possession of 
those sourcesand means of production, which are capable of exclusive ap- 
propriation; and thus the owners of mere personal agency would nowise 
benefit. But it should be observed, that private persons have an immedi-. 
ate personal interest in making the most of their property; and will, on 
their own account, so conduct themselves, as to promote their own advan- 
tage, which is the advantage of the public also, where equality of personal 
right prevails. Wherefore, the strongest impulse of private cupidity can 
never operate to retard the advance of productive power and national 
wealth, or to make them retrograde, but just the contrary. Thus, although 
the present condition of the mere labourer might notbe improved, his means 
of bettering his condition would be enlarged, by the growing increase of 
wealth, and by greater freedom of personal agency. The extortion of pri- 
vate cupidity, unaided by authority, must, for its own sake, regulate it- 
self by the ability oftlie object of it: but that of pubhc au-thority is inexora- 



438 ON CONSUMPTION. book hi. 



SECTION III. 



Of Taxation in Kind. 

Taxation in kind is the specific and immediate appropria- 
tion of a portion of the gross product to the public service. 

It has this advantage, of calling on the producer only for 
what he has actually in hand, in the identical shape which it 
happens to be under. Belgium, after its conquest by France, 
found itself at times unable to pay its taxes, in spite of abun- 
dant crops; the war, and the prohibition of exportation, ob- 
structed the sale of its produce, which the government enforced 
by demanding paj'ment in money; whereas, the taxes might 
have been collected without difficulty, had the government 
been content to take payment in kind. 

It has the further advantage of making it equally the inte- 
rest of government and of the farmer to obtain plentiful crops, 
and improve the national agriculture. The levying of taxes 
in kind in China was probably the origin of the peculiar en- 
couragement, bestowed by its government upon the agricul- 
tural branch of production. But, why favour one branch, 
when all are equally entitled to protection, because all con- 
tribute to bear the public burthens? And, why has not govern- 
ment an equal interest in supporting the other branches, which 
it takes the trouble of extinguishing? 

It has likewise the advantage of excluding all exaction and 
injustice in the collection; the individual, when he gathers in 
his harvest, knows exactly what he has to pay; and the state 
knows what it has to receive. 

This tax, which might appear at first sight to be of all others 
the most equitable, is, nevertheless, of all others the most in- 
equitable; for it makes no allowance for the advances made in 
the course of production, but is taken upon the gross, instead 
of the net, product. Take two farmers in different branches 
of cultivation; the one farming tillage-land of moderate quali- 
ty; his expenses of cultivation amounting one year with ano- 
ther, say to SOOOyn, and the gross product of his farm, say to 
12,000 /r., so as to yield him a net product of 4000 /r. only; 
the other farming pasturage or wood-land, yielding a gross 
product of precisely the same amount of 12,000yr. ; with an 
expense of cultivation amounting, perhaps, to but 2000 /r. 



ble, and is restrained by no consideration of immediate personal interest. 
Besides, personal suffering', occasioned by the hard-heartedness of private 
task-masters, is not so strong an incentive of odium against public authority, 
as where that authority is itself the ostensible task-master. T. 



CHAP. VIII. OlN CONSUMPTION. 439 

leaving him a net product, one year with another, of 10,000yr. 
Suppose a tax in kind to be imposed in the ratio of 1-12 of the 
annual product of land of all descriptions indiscriminately. 
The former will have to pay in sheaves of corn to amount of 
1000 fr.: the latter will pay, in cattle or in wood, an equal 
value of 1000/)'. What is the result? The one will have paid 
the fourth part of a net revenue of 4000 /r,; the other but the 
tenth part of a net revenue of 10,000 Jr. 

The revenue, that each person has for his own share, is the 
net residue only after replacing the capital he has embarked, 
whatever may be its amount. Is the gross amount of the 
sales he effects in the year the annual income of the merchant? 
Certainly not; all the income he gets is the surplus of his re- 
ceipts above his advances; on this surplus alone can he pay 
taxes, without ruin to his concerns. 

The ecclesiastical tithe levied in France under the old sys- 
tem was liable to this inconvenience in part only. It attached 
neither upon meadow, nor wood-land, nor kitchen ground, nor 
many other kinds of cultivation; and in some places was 1-18 
in others 1-15 or 1-10 of the gross product; so that the real, 
was corrected by the apparent inequality. 

The marechal de Vauban, in his work entitled, Dixiine Roy- 
ale, a book replete with just views, and well worth the study 
of those who manage national finances, proposes a tax of 1-20 
of the product of the land, which, in times of great emergen- 
cy, might be raised to 1-10. But this proposition was made 
as a substitute for a still more inequitable system: namely, the 
saddling of the lands of the commonalty with the whole tax, 
and altogether exempting the lands of the nobles and clergy. 
That public-spirited writer, who had occasion, in his charac- 
ter of engineer, to become personally acquainted with every 
part of France, speaks most feelingly of the hardships result- 
ing from the land-tax {a) of those days. And there is no doubt, 
that the adoption of his plan at that time would have been a 
vast relief to the country. But it was disregarded. Why? 
Because every courtier had an interest to resist it: and this 
fine country was left to flounder through its distresses. The 
consequence was, a heavier loss of population from famine, 
than from the sword, in the war of the Spanish succession. 

The difficulty and expense of collection, together with the 
abuses to which it is liable, are another objection to taxation 
in kind. The immense number of agents must open a fine 
field for peculation. The government may be imposed upon, 
in respect to the amount collected, upon the subsequent sale 
and disposal, in respect to the quantity damaged, as well as in 
the charges of storing, preservation and carriage. If the tax 
be farmed to contractors, the profits and expenses of number- 



(a) Taillc; for the explanation of this tax, vide Wealth of Nations, book 
c. 2. art. 2. T. 



440 ON CONSUMPTION. book hi. 

less farmers and contractors must all fall upon the public. The 
prosecution of the farmers and contractors would require the 
active vigilance of administration. ' A gentleman of great for- 
tune,' says Smith, ' who lived in the capital, would be in dan- 
ger of suffering much by the neglect, and more by the fraud, 
of his factors and agents, if the rents of an estate in a distant 
province were to be paid to him in this manner. The loss of 
the sovereign, from the abuse and depredation of his tax-ga- 
therers, would necessarily be much greater,'* 

Various other objections have been urged against taxation 
in kind, which it would be useless and tedious to enumerate. 
I shall only take the liberty of remarking the violent opera- 
tion upon relative price, which must follow from so vast a 
quantity of produce being thrown upon the market by the 
agents of the public revenue, who are notoriously equally im- 
provident as buyers and as sellers. The necessity of clearing 
the storehouses to make room for the fresh crop, and the ever 
urgent demands upon the public purse, would oblige them to 
sell below the level, to which the price would naturally be 
brought by the rent of the land, the wages of labour, and the 
interest of the capital, engaged in agriculture; and private 
dealers would be unable to maintain the competition. Such 
taxation not only takes from the cultivator, a portion of his pro- 
duct, but prevents his turning the residue to good account. 



SECTION ly. 

Of the Territorial or Land-Tax of England. 

In the year 1692, which was four years after the happy 
revolution, that placed the prince of Orange upon the British 
throne, a general valuation was made of the income of all the 
land in the country; and, upon that valuation the land-tax con- 
tinues to be levied to this day; so that the tax of four shillings 
in the pound, upon the rents of land, is a fifth of its rent in 
1692, and not of the actual i^ent at the present day. 

It may easily be conceived how much this tax must operate 
to encourage improvements of the land. An estate, that has 
been improved so as to double the rent, does not pay double 
the original tax; neither does it pay a less tax if it be suffered 
to fall into neglect and impoverishment; thus, it operates as a 
penalty upon negligence. 

To this fixation of the tax, many writers attribute the high 
state of the cultivation of the land in England: and doubtless 
it may have done much to promote improvement. But, what 
would be thought of a government that should say to a trades- 

* Wealth of Nations, book v. c. 2, art. 1. 



CHAP. viTi. ON CONSUMPTION. 441 

man in a small way of business, " You are trading in a small 
way upon a small capital, and consequently pay very little in 
direct taxes. Borrow, and enlarge your capital, extend your 
dealings, and increase your profits as much as you can, and 
we will not charge you with any increase of taxes. Nay fur- 
ther, when your heirs succeed to the business, and have still 
further extended it, they shall be assessed at precisely the 
same rate, and shall continue subject to the same taxes only.' 
All this might be a vast encouragement to trade and manufac- 
ture; but would there be any equity in such a proceeding? 
and might they not advance without such assistance? Has not 
England herself presented the example of a still more rapid 
improvement in commercial and manufacturing industry, with- 
out any such unjust partiality? A land-owner, by attention, 
economy, and intelligence, improves his annual income to the 
amount, say of 5000/r.; if the state claim a fifth of this ad- 
vance, there will still be a bonus of 4000yr. to stimulate and 
reward his exertions. 

It would be easy to put cases, in which the tax, becoming 
by its fixation disproportionate to the means of the tax-payers 
and the condition of the soil, might be productive of as much 
mischief, as it has done good in other instances: where it 
would operate to throw out of cultivation a class of land, that, 
by one cause or other, had become incompetent to pay the 
same ratio of taxation. We have seen an example of this in 
Tuscany. There, a census or terrier was made in 1496, where- 
in the plains and vallies were rated very low, on account of 
the frequent floods and inundations, which prevented any re- 
gular and profitable cultivation: while the uplands, that were 
then the only cultivated spots, were rated very high. Since 
then, the torrents and inundations have been confined by 
drainage and embankment, and the plains reduced to fertility; 
their produce being comparatively exempt from tax, came to 
market cheaper than that of the uplands, which, consequently, 
were unable to maintain the competition, under the pressure 
of disproportionate taxation, and have gradually been abandon- 
ed and deserted.* Whereas, had the tax been adjusted to the 
change of circumstances, both might have been cultivated to- 
gether. 

In speaking of a tax, peculiar to a particular nation, I have 
used it merely in illustration of general and universal princi- 
ples. 

• Forbonnois, Principes et Observ. &,c. torn. ii. p. 247. 
63 



442 ON CONSUMPTION. book hi. 



CHAPTER IX. 



OF NATIONAL DEBT. 



SECTION I. 

Of the Contracting of Debt by National ,duthority, and 
of its general Effect. 

There is this grand distinction between an individual bor- 
rower and a borrowing government, that, in general, the for- 
mer borrows capital for the purpose of beneficial employment, 
the latter for the purpose of barren consumption and expendi- 
ture. A nation borrows, either to satisfy an unlooked-for de- 
mand, or to meet an extraordinary emergency; to which ends, 
the loan may prove effectual or ineffectual: but, in either case, 
the whole sum borrowed is so much value consumed and lost, 
and the public revenue remains burthened with the interest 
upon it. 

Melon maintains, that national debt is no more than a debt 
from the right hand to the left, which nowise enfeebles the 
body politic. But he is mistaken; the state is enfeebled, inas- 
much as the capital lent to its government, having been de- 
stroyed in the consumption of it by the government, can no 
longer yield any body the profit, or in otlier words, the inter- 
est, it might earn in the character of a productive means. 
Wherewith, then, is the government to pay the interest of its 
debt? Why, with a portion of the revenue arising from some 
other source, which it must transfer from the tax-payer to the 
public creditor for the purpose. 

Before the act of borrowing, there will have been in exist- 
ence two productive capitals, each of them yielding, or capa- 
ble of yielding, revenue; that is to say, a capital about to be 
lent to government, and a capital whereon the future tax-pay- 
ers derive that revenue, which is about to be applied in satis- 
faction of the interest upon the capital lent. After the act of 
borrowing, there will remain but one of these capitals; viz., 
the latter of the two, whereof the revenue is thenceforward 
no longer at the disposal of its former possessors, the present 
tax-payers, since it must be taken in some form of taxation or 
other by the government, for the sake of providing the pay- 
ment of interest to its creditors. The lender loses no part of 
his revenue: the only loser is the payer of taxes. 



CHAP. IX. ON CONSUMPTION. 443 

People are apt to suppose, that, because national loans do 
not necessarily occasion any diminution of the national money 
or specie, therefore, they occasion, not a loss but merely a 
transfer, of national wealth. With a view to the more ready 
exposure of this fallacy, I have subjoined a synoptical table, 
showing what becomes of the sum borrowed, and whence the 
public creditor's interest is satisfied.* 

When a government borrows, it either does or does not en- 
gage to repay the principal. In the latter case it grants what 
is called, a perpetual annuity. Redeemable loans are capable 
of infinite variety in the terms. The principal is contracted 
to be repaid, sometimes gradually, and in the way of lottery; 
sometimes by instalments payable together with the interest, 
sometimes in the way of increased interest, with condition to 
expire on the death of the lender; as in the case of tontines 
and life-annuities, whereof the latter determine on the death 
of the individual lender; whereas, in tontines, the full interest 
continues to be divided amongst the survivors, until the whole 
of the lives have expired. 

Tontines and life-annuities are very improvident m.odes of 
borrowing; for the borrower remains throughout liable to the 
full rate of interest, although he annually repays a part of the 
principal. Besides, they savour of immorality; offering a pre- 
mium to egotism, and a stimulus to the dilapidation of capital, 
bjT^ enabling the lender to consume both principal and interest, 
without fear of personal beggary. 

The government best acquainted with the business of bor- 
rowing and lending have not, of late years at least, given any 
engagement to repay the principal of the loan. Thus, public 
creditors have no other way of altering the investment of their 
capital, except by selling their transferable security, which 
they can do with more or less advantage to themselves, ac- 
cording to the buyer's opinion of the solidity of the debtor- 
government, that has granted the perpetual annuity, t Des- 
potic governments have alwavs found a great difficulty in ne- 
gotiating such loans. Where the sovereign is powerful enough 
to violate his contracts at pleasure, or where there is a mere 
personal contract with the reigning monarch, with a risk of 
disavowal by the successor, lenders are loth to advance their 
money, without a near and definite period of repayment. 

The appointment to posts and offices, under condition of an 
annual payment, orof deposite for which the government en- 
gages to pay interest, is a mode of borrowing in perpetuity, 
in which the loan is compulsory. When once this paltry 
expedient is resorted to, it requires very little ingenuity to 
find plausible grounds, for converting almost every occupa- 

* Vide App. A. 

j- III the next section it will be explained liow an unredeemable debt 
may be extinguished by purchase at tlie market-price. 



444 ON CONSUMPTION. book hi. 

tion, down to the dust-man and stre6t-porter, into patent and 
saleable offices. 

Another mode of borrowing is, by the anticipation of reve- 
nue; by which is meant, the assignment by a government of 
revenues not yet due, with allowance in the nature of discount, 
the taking up money in advance from lenders, who charge a 
discount proportionate to the risk they run from the instabili- 
ty of the government and possible deficiency of the revenue. 
Engagements of this kind, contracted by a government, and 
satisfied either out of the revenue when collected, or by the 
issue of fresh bills upon the public treasury, constitute what 
bears the uncouth English denomination of ^o«^2w^ debt: the 
consolidated debt being that, whereon the creditor can de- 
mand the interest only, and not the principal. 

National loans of every kind are attended with the univer- 
sal disadvantage, of withdrawing capital from productive em- 
ployment, and diverting it to the channel of barren consump- 
tion; and, in countries where the credit of the government is 
at a low ebb, with the further and particular disadvantage, of 
raising the interest of capital. Who can be expected to lend 
at 5 per cent, to the farmer, the manufacturer, or the mer- 
chant, while he can readily get an offer of 7 or 8 per cent, 
from the government? That class of revenue, which has been 
called, profit of capital, is thereby advanced in its ratio, at the 
expense of the consumer: the consumption falls off, in conse- 
quence of the advance in the real price of products; the pro- 
ductive agency of the other sources of production are less in 
demand, and, consequently, worse paid; and the whole com- 
munity is the sufferer, with the sole exception of the capi- 
talist. 

The ability to borrow affords one main advantage to the 
state; viz. the power of apportioning the burthen entailed by a 
sudden emergency among a great number of successive years. 
In the present state of public affairs, and on the present scale 
of international warfare, no country could support the enor- 
mous expense from its ordinary annual revenue. The larger 
states pay in taxation nearly as much as they are able; for 
economy is by no means the order of the day with them; and 
their ordinary expenditure seldom falls much short of the in- 
come. If the expenditure must be doubled to save the nation 
from ruin, borrowing is usually the only resource; unless it 
can make up its mind to violate all subsisting engagements, 
and be guilty of spoliation of its own subjects and foreigners 
too. The faculty of borrowing is a more powerful agent, than 
even gunpowder; but probably the gross abuse, that is made 
of it, will soon destroy its efficacy. 

Great pains have been taken, to find in the system of bor- 
rowing, as well as in taxation, some inherentadvantage, beyond 
that of supplying the public consumption. But a close examin- 
ation will expose the hopelessness of such an attempt. 

It has been maintained, for instance, that the debentures and 



CHAP. IX. ON CONSUMPTION. 445 

securities, which form a national debt, became real and sub- 
stantial values existing within the community; that the capi- 
tal, of which they are the evidence or representative, is so 
much positive wealth, and must be reckoned as an item of the 
total substance of the nation.* But it is not so; a written con- 
tract or security is a mere evidence, that such or such pro- 
perty belongs to such an individual. But wealth consists in 
the property itself, and not in the parchment, by which its 
ownership is evidenced; therefore cl fortiori, a security is not 
even an evidence of wealth, where it does not represent an 
actual existing value, and when it operates as a mere power 
of attorney from the government to its creditor, enabling him 
to receive annually a specified portion of the revenue expect- 
ed to be levied upon the tax-payers at large. Supposing the 
security to be cancelled, as it might be by a national bank- 
ruptcy, would there be any the least diminution of wealth in 
the community? Undoubtedly not. The only difference would 
be, that the revenue, which before went to the public creditor, 
would now be at the disposal of the tax-payer, from whom it 
used to be taken. 

Those who tell us, that the annual circulation is increased 
by the whole amount of the annual disbursements of the go- 
vernment, t forget that these disbursements are made out of 
the annual products, and are a portion of the annual revenue, 
taken from the tax-payer, which would have been brought into 
the general circulation just the same, although no such thing as 
national debt had existed. The tax -payer would have spent 
what is now spent by the public creditor; that is all. 

The sale or purchase of debentures or securities is not a pro- 
ductive circulation, but a mere substitution of one public 
creditor in place of another. When these transfers degenerate 
into stock-jobbing, that is to say, the making of a profit by 
the rise and fall of their price, they are productive of much 
mischief; in the first place, by the unproductive employment 
on this object of the agent of circulation, money, which is an 
item of the national capital; and, in the next, by procuring a 
gain to one person by the loss of another; which is the charac- 
teristic of all gaming. The occupation of the stock-jobber 
yields no new or useful product; consequently, having no pro- 
duct of his own to give in exchange, he has no revenue to 

* Considerations sur les ^vantages de I'Existence d'tme Bette piiblique,-p.8. 

■j-The transferable natui'e of these securities does not invest them with 
the properties of money, since they do not act in that capacity. But the 
use of convertible paper, Jis money, operates to create a posiiive addition 
to tlie total national capital; because, but for their agency in the transfer of 
value in general, it must be executed by specie, or some ec^ually substan- 
tial item of capital. Government debentures of stock require money to 
circulate them, instead of acting themselves as money. 



446 ON CONSUMPTION. book hi. 

subsist upon, but what he contrives to make out of the unskil- 
fulness or ill-fortune of gamesters like himself, (a) 

A national debt has been said to bind the public creditors 
more firmly to the government, and make them its natural 
supporters by a sense of common interest; and so it does be- 
yond all doubt. But, as this common interest may attach 
equally to a bad or a good government, there is just as much 
chance of its being an injury as a benefit to the nation. If we 
look at England, we shall see a vast number of well-meaning 
persons, induced by this motive to uphold the abuses and mis- 
government of a wretched administration. 

It has been further urged, that a national debt is an index 
of the public opinion, respecting the degree of credit which 
the government deserves, and operates as a motive to its good 
conduct and endeavours to preserve the public opinion, of 
which such a debt furnishes the index. This can not be ad- 
mitted without some qualification. The good conduct of go- 
vernment, in the ej^es of the public creditors, consists in the 
regular payment of their own dividends; but, in the eyes of 
the tax-payers, it consists in spending as little as possible. The 
market-price of stock does, indeed, furnish a tolerable index 
of the former kind of good conduct, but not of the latter. Per- 
haps it would be no exaggeration to say, that the punctual pay- 
ments of the dividends, instead of being a sign of good, is in 
numberless instances a cloak to bad, government; and, in some 
countries, a boon for the toleration of frequent and glaring 
abuses. 

Another argument in favour of national debt is, that it af- 
fords a prompt investment to capital, which can find no ready 
and profitable employment, and thus must at any rate, prevent 
its emigration. If it do, so much the worse: it is a bait to 
tempt capital towards its destruction, leaving the nation bur- 
thened with the annual interest, which government must pro- 
vide. It is far better that the capital should emigrate, as it 
would probably return sooner or later; and then its interest 
for the mean time will be chargeable to foreigners. A na- 
tional debt of moderate amount, the capital of which should 
have been well and judiciously expended in useful works, 
might indeed be attended with the advantage of providing an 
investment for minute portions of capital, in the hands of per- 
sons incapable of turning them to account, who would pro^ia- 
bly keep them locked up, or spend them by driblets, but for 
the convenience of such an investment. This is perhaps the 
sole benefit of a national debt; and even this is attended with 
some danger; inasmuch as it enables a government to squan- 
der the national savings. For, unless the principal be spent 
(Upon objects of permanent public benefit, as on roads, canals. 



((/) The distinction between tlie stock-jobber and the stock-broker ia too 
obvious to need an explanation. T. 



CHAP. IX. ON CONSUMPTION. 447 

or the like, it were better for the public, that the capital should 
remain inactive, or concealed; since, if the public lost the use 
of it, at least it would not have to pay the interest. 

Thus, it may be expedient to borrow, when capital must be 
spent by a government, having nothing but the usufruct at its 
command; but we are not to imagine, that, by the act of boi-- 
rowing, the public prosperity can be advanced. The bor- 
rower, whether a sovereign, or an individual, incurs an annual 
charge upon his revenue, besides impoverishing himself to 
the full amount of the principal, if it be consumed; and nations 
never borrow but with a view to consume outright. 



SECTION II. 

Of public Credit, its Basis, and the Circumstances that 
endanger its Solidity. 

Public credit is the confidence of individuals in the engage- 
ments of the ruling power, or government. This credit is at 
the extreme point of elevation, when the public creditor gets 
no higher interest, than he would by lending on the best pri- 
vate securities; which is a clear proof, that the lenders require 
no premium of insurance to cover the extra risk they incur, 
and that in their estimation there is no such extra risk. Pub- 
lic credit never reaches this elevation, except where the go- 
vernment is so constituted, as to find great difficulty in break- 
ing its engagements; and where, moreover, its resources are 
known to be equal to its wants; for which latter reason, pub- 
lic credit is never very high, unless where the financial ac- 
counts of the nation are subject to general publicity. 

Where the public authority is vested in a single individual, 
it is next to impossible, that public credit should be very ex- 
tensive; for there is no security, beyond the pleasure and good 
faith of the monarch. When the authority resides in the peo- 
ple, or its representatives, there is the further security of a 
personal interest in the people themselves, who are creditors 
in their individual, and debtors in their aggregate, character; 
and, therefore, can not receive in the former, without paying 
in the latter. This circumstance alone would lead us to pre- 
sume, that now, when great undertakings are so costly as ta 
be eSected by borrowing alone, representative governments 
will acquire a marked preponderance in the scale of national 
power, simply on account of their superior financial resources, 
without reference to any other circumstance. 

In one light, the obligations of government inspire more 
confidence than those of individuals, that is to say, by the 
greater solidity of its resources. The resources of the most 



448 ON CONSUMPTION. book iii. 

responsible individual may fail suddenly and totally, or at least 
to such an extent, as to disable him from performing his en- 
gagements. Numerous commercial failures, political or na- 
tural calamities, litigation, fraud or violence, may ruin him 
entirely; but the supplies of a government are derived from 
such various quarters, that the individual calamities of its sub- 
jects can operate but partially upon the revenue of the state. 
There is also another thing, that facilitates the borrowing of 
government even more than the credit it is fairly entitled to; 
and that is, the great facility of transfer presented to the stock- 
holder. Public creditors always reckon upon the possibility 
of withdrawing by the sale of their debentures, before the oc- 
currence of embarrassment or bankruptcy; and, even where 
they contemplate such a risk, generally consider some ad- 
vance of the rate of interest a sufficient premium of insurance 
against it. 

Moreover, it is observable, that the sentiments of lenders, 
and indeed of inankind upon all occasions, are more powerfully 
operated upon by the impressions of the moment, than by any 
other motive; experience of the past must be very recent, and 
the prospect of the future very near, to have any sensible ef- 
fect. The monstrous breach of faith on the part of the French 
government in 1721, in regard to its paper money and the 
Mississippi shareholders, did not prevent the ready negotia- 
tion of a loan of 200,000,000 liv. in 1759; nor did the bank- 
rupt measures of the Abbe Terrai in 1772, prevent the nego- 
tiation of fresh loans in 1778 and every subsequent year. 

In other points of view, the credit of individuals is better 
founded than fhatof the government. There is no compulso- 
ry process against the latter, for the breach of its engagements; 
nor do governments ever husband the national resources with 
nearly the care and attention of individuals. Besides, in the - 
event of external or internal subversion, individuals may with- 
draw their property from the wreck much better than govern- ' 
ments can. 

Public credit affords such facilities to public prodigality, that 
many political writers have regarded it as fatal to national 
prosperity. For, say they, when governments feel themselves 
strong in the ability to borrow, they are too apt to intermeddle 
in every political arrangement, and to conceive gigantic pro- 
jects, that lead sometimes to disgrace, sometimes to glory, but 
always to a state of financial exhaustion; to make war them- 
selves, and stir up others to do the like; to subsidize every 
mercenary agent, and deal in the blood and the consciences of 
mankind; making capital, which should be the fruit of indus- 
try and virtue, the prize of ambition, pride, and wickedness. 

A nation, which has the power to borrow, and yet is in a 
state of political feebleness, will be exposed to the requisitions 
of its more powerful neighbours. It must subsidize them in 
its defence; must purchase peace; must pay for the toleration 
of its independence, which it generally loses after all; or per- 



CHAP. IX. ON CONSUMPTION. 449 

haps must lend, with the certain prospect of never being re- 
paid. 

These are by no means hypothetical cases: but the reader 
is left to make the application himself. 

By the establishment of sinking-funds, well ordered govern- 
ments have found means to extinguish and discharge their un- 
redeemable debt. The constant operation of this contrivance 
contributes more than any thing else to the consolidation of 
public credit. The mode of proceeding is simply this: 

Suppose that the state borrows 100 millions, at an interest 
of 5 per cent. : to pay that interest, it must appropriate a por- 
tion of the national revenue to the amount of 5 millions. For 
this purpose, it usually imposes a tax calculated to produce 
this sum annually. If the tax be made to produce somewhat 
more, say 5,462,400yr., and the surplus of 462,400 ^r. be 
thrown into a particular fund, and laid out annually, in the 
purchase of government debentures to that amount in the mar- 
ket, and if, moreover, in addition to this surplus, the interest 
likewise upon the debt thus extinguished, be annually employ- 
ed in such purchases, the whole principal debt will be extin- 
guished at the end of fifty years. This is the mode in which 
a sinking fund operates. The efficacy of this expedient de- 
pends upon the progressive power of compound interest; that 
IS to say, the gradual augmentation of the interest of capital, 
by the addition of interest upon the arrears of interest, reckoned 
from certain stated rests. 

It is obvious, that, by an annual instalment of not more than 
10 per cent, upon its own interest, the principal of a debt bear- 
ing an interest of 5 per cent, may be extinguished in less than 
50 years. However, the sale of the debentures being volun- 
tary, if the holders will not sell at par, that is to say, at 20 
years' purchase, the redemption, in this way, will take some- 
what longer time; but this very state of the market will be a 
convincing proof of the high ratio of national credit. On the 
other hand, if the credit decline, so that the same sum will pur- 
chase a larger amount of debentures, the extinction of the debt 
will be effected in a shorter period. So that the lower public 
credit falls, the more powerful is the operation of a sinking- 
fund to revive it; and that fund grows less efficient, exactly in 
proportion as it becomes less requisite. 

To the establishment of such a fund, has the long continued 
public credit of Great Britain been attributed, and her ability 
still to go on borrowing, in spite of a present debt of more 
than 19 milliards of our money.* And doubtless this it is, 

* Vansittart, the chancellor of the exchequer in Eng-land, in a speech 
delivered in parliament, in the month of February, 1815, states it at 650 
millions sterling only, which is but from 15 to 16 milliards: but this estimate 
is taken at the loan, and not at the redemption price. Vide de. V Mnglflfrre, 
et des Jlnglais, par J . B. Say, Paris, 1816. 3d edit. p. 13. 

64 



450 ON CONSUMPTION. book hi. 

that has made Smith declare sinking-funds, which were con- 
trived expressly to reduce national debt, the main instruments 
of their increase. Had not governments the happy knack of 
abusing resources of every kind, they would soon grow too 
rich and powerful. 

A sinkmg-fund is a complete delusion, whenever a govern- 
ment continues borrowing on one hand, as much as it redeems 
on the other; and, d, fortiori, when it borrows more than it re- 
deems, as England has constantly done, since the year 1793 to 
the present time. Whencesoever the amount of the sinking- 
fund be derived, whether it be merely the product of a fresh 
tax, or that product, augmented by the interest on the extin- 
guished debt, if the government borrow a million for every 
million of debt that it pays off, it creates an annual charge of 
precisely the same amount as that extinguished: it is precisely 
the same thing, as lending to itself the million devoted to the 
purpose of redemption. Indeed, the latter course would save 
the expense of the operation. This position has been fully es- 
tablished in an excellent work, by professor Hamilton,* which 
is quite conclusive upon the subject. The enormous burthens 
of the people of England, the scandalous abuse its government 
has made of the power of borrowing, and her substitution of 
paper-money in place of specie, will have produced some be- 
nefit at least; inasmuch as they have assisted the solution of 
many problems, highly interesting to the happiness of nations, 
and given warning to all future generations, to beware of the 
like excesses. 

It must be evident, that the grand requisite to the efficiency 
of a sinking-fund is, the punctual and inviolable application of 
the sums appropriated to the purpose of redemption. Yet this 
has never been rigidly adhered to, even in England, where 
consistency and good faith to the creditors are a point of ho- 
nour with the government. So that English writers put no 
faith in the extinction of the debt by the operation of the sink- 
ing-fund: nay, Smith makes no scruple of declaring, that na- 
tional debts have never been extinguished except by national 
bankruptcy. 

It has been sometimes a matter of speculation, to inquire 
into the effect of a national bankruptcy upon the relative con- 
dition of individuals, and the internal economy of the nation. 
In ordinary cases, when a government commits an act of bank- 
ruptcy, it adds to the revenues of the tax-payers the whole 
amount that it discontinues paying to the public creditors.— 
Nay, it goes somewhat further: for it remits likewise the 
charges of collection and management of the revenue and the 
debt. A nation burthened with 100 millions of annual interest 
on its debt, whereon the charges above mentioned should 

* On the National Debt of Great Britain. 8vo. Edinburgh. 1813. 



CHAP. IX. ON CONSUMPTION. 451 

amount to 30 per cent* more, might by a bankruptcy remit 
to the tax -payers 130 millions, while it stript its creditors of 
100 millions only. 

In England, the effect would be more complicated; because 
she does not pay the dividends on her debt wholly out of the 
annual proceeds of taxation; at least, not at the moment of my 
waiting; but annually borrows a sum nearly equal to the in- 
terest of her debit Were she to commit an act of bankrupt- 
cy, the annual loans of 40 millions sterling, more or less, would 
be withdrawn from unproductive consumption by the public 
creditors, and be applicable to the purposes of reproductive 
consumption: for it may fairly be supposed, that the capital- 
ists who accumulate and lend to the state, would look out for 
some profitable investment. In this point of view, the opera- 
tion would tend vastly to the increase of the national capital 
and revenue: but the execution would be attended with very 
disastrous immediate consequences: for this annual amount of 
40 millions would be withdrawn from a class of consumers, 
who have no other means of subsistence, and would be utterly 
unable to make good their losses in any other way, for want 
both of personal industry, and of the command of capital. 

A bankruptcy would probably obviate the necessity of fresh 
loans: but would not release an atom of the former taxation, 
where the interest of the debt is habitually paid, not with the 
proceeds of taxation, but with new loans. Thus, the burthens 
of the people would not be alleviated,:}^ nor the charges of pro- 
duction reduced: consequently, there would be no sensible 
reduction in the price of commodities; nor would British pro- 
ducts find a readier market either at home or abroad. 

The classes liable to taxation would be diminished in nu- 
merical strength by the whole of the suppressed stockholders; 
and taxation less productive, although not lowered in the ratio. 
The 40 millions of revenue, withdrawn from the public credi- 
tors, would pay taxes only upon the annual profit or revenue, 
they might yield in the character of productive capital. («) 

* In England and the United States they are not nearly so high in pro- 
portion: but the ratio is even higher in some states that shall be nameless. 

■\ Colquhoun, Wealth, Power, and Resources of the British Empire, 4to. 
London, 1814. Stokes, Revenue and Expenditure of Great Britain, Lon- 
don, 1815. Should a continuance of peace enable her to square her in- 
come with her annual expenditure, inclusive of the interest on her debt, it 
would still afford no relief, but merely arrest the further progress of the 
evil. 

\ Economy in the national expenditure is the only thing that can miti- 
gate the pressure of taxation upon the British nation; yet, were economy 
enforced, how is that system of corruption to be upheld, through which 
the interest of the minister of the day regularly prevails over that of the na- 
tion? 



(«) That is to say, upon nearly the wliole amount; for the whole must 
either be cousunicd unjjroductivfly by the ci-devant lenders, or embarked 



452 ON CONSUMPTION. book hi. 

The ruin of the public creditors would be attended with abun- 
dance of collateral distress; with private failures and insolven- 
cy, without end; with the loss of employment to all their trades- 
men and servants, and the utter destitution of all their de- 
pendents. 

On the other hand, if she persevere in borrowing to pay the 
interests of former loans, that interest, and with it taxation 
also, must go on increasing to infinity. It is impossible to 
avoid a precipice, when one follows a road that leads nowhere 
else, (a) 

The potentates of Asia, and all sovereigns, who have no 
hopes of establishing a credit, have recourse to the accumula- 
tion of treasure. Treasure is the reserve of past, whereas a 
loan is the anticipation of future, revenue. They are both 
serviceable expedients in case of emergency. 

A treasure does not always contribute to the political secu- 
rity of its possessors. It rather invites attack, and very sel- 
dom is faithfully applied to the purpose for which it was des- 
tined. The accumulation of charles V. of France fell into 
the hands of his brother, the duke of Anjou; those which pope 
Paul II. destined to oppose the Turkish arms, and drive them 
out of Europe, supplied the extravagancies of Sixtus IV., and 



in productive enterprises; in whicli latter case, it will go almost wholly 
towards the revenue of human agency, in all those countries, where the 
appropriable natural agents are already wholly appropriated. Thus, in a 
financial point of view it is of little immediate consequence, whether the 
sum be borrowed and expended by the state or by its creditors; for it is 
sure to go almost wholly to the formation of private and taxable revenue. 
Nay, its payment to the creditors is probably the destination, that will, of 
all others, least expose it to indirect taxation; for stock-holders are com- 
monly amongst the most frugal of the members of a community; and it is 
notoriously to them that the government looks for a very considerable part 
of the loans it may have occasion to negotiate; and herein theory is confound^ 
ed by experience. The cessation of loans in Great Britain, consequent up- 
on tlie reduction of 40 millions of expenditure, has made little reduction in 
the proceeds of indirect taxation. But the remote consequence will be 
widely different. If the sum be unproductively expended, it will nowise 
expand the national productive power, yet leave that power burthened 
with its future interest; if expended productively, it well expand produc- 
tive power, and entail no additional pressure upon its elasticity. T. 

(a) The momentous question of national bankruptcy is treated by our 
author with much less attention than it deserves. He has told us neither in 
what cases it is just, nor in what cases it is necessary, nor by what means it 
can be effected, with the smallest degree of individual hardship, and nation- 
al confusion and embarrassment. It must be obvious, that it maj' be either par- 
tial or total, sudden or gradual; and that there are a variety of ways of effecting 
it, whereof some must be far less objectionable than others; as for instance, 
by extinction of principal, or by the sponge, as it is termed; b}'^ extinction 
or reduction of interest only; by lowering the weight or quality of a national 
metallic-money; by depreciating a national paper-money by its excessive 
issue; by taxation of principal or of interest of tlie debt, &,c. 8cc. : all which ex- 
pedients it would be impossible to canvass in the narrow limits of a note. T. 



CMAP. IX. ON CONSUMPTION. 453 

li'is nephews. The treasures amassed by Henry IV., for the 
humiliation of the house of Austria, were lavished upon the 
lavourites of the queen-mother; and, at a later period, we have 
seen the political power of Prussia brought into imminent ha- 
zard by those very savings, which were destined by Frederic 
11. to its consolidation. 

The command of a large sum is a dangerous temptation to a 
national administration. Though accumulated at their ex- 
])ense, the people rarely, if ever, profit by it: yet in point of 
fact, all value, and consequently, all wealth, originates with 
the people. 



454 



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